international financial institutions and the new global managerial order

Critical Perspectives on Accounting 19 (2008) 714–740

International financial institutions andthe new global managerial order

Jonathan MurphyCardiff Business School, Cardiff, United Kingdom

Received 18 July 2005; received in revised form 1 December 2005; accepted 1 August 2006

Abstract

This article is a contribution to the continuing debate within critical accounting and broader criticaltheory circles about the nature of capitalism in a globalized economic order. It argues that the con-temporary economic environment cannot be adequately explained by traditional critical theories ofimperialism. Through an analysis of the emergence of Mittal Steel Corporation as the world’s largeststeel producer, I document how international financial institutions encouraged the success of thisnew type of transnational corporation that is culturally grounded but not geographically bound to ahegemonic nation-state. The Mittal example suggests that globalization is fundamentally altering therelationship between international capital and the nation-state, and heralding the rise of internationalfinancial institutions (IFIs) as key actors in structuring a global, elite-driven order. The IFIs operateoutside democratic control and scrutiny, and are able to impose their preferred economic solutionsacross the world.© 2007 Elsevier Ltd. All rights reserved.

Keywords: World bank; Steel industry; European bank for reconstruction and development; Elite theory; Kaza-khstan; Tax havens; Global government; Privatization

1. Introduction

The collapse of communism provided the world’s elites with a window of opportunity tocreate a truly global economic structure. The discrediting of the state socialist model pro-vided an impetus to the privatization program masterminded by neoliberal ideologues and

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initially implemented by the UK Thatcher government (Cockett, 1995). The dismantlementof the Soviet bloc and ultimately of the USSR itself permitted the global integration of theSoviet elites. The World Bank and the other transnational financial institutions had a crucialrole to play in designing and implementing this new global order.

In this article I argue that the key features of the new global system are not privateownership, although it is present, or ideological purity, although it is claimed. Neither is thenew system a form of imperialism as argued by neo-Marxists. The new economic systemis a highly managed form of elite domination in which the nascent global governanceinstitutions play a crucial – indeed, often decisive – role. They are not hesitant to ‘pickwinners’, and are quite willing to choose corporations with roots outside the ‘core’ capitalistcountries. Despite their protestations in favour of transparency and propriety, the WorldBank and the other international financial institutions (IFIs) are willing to overlook andeven defend non-transparent business and governance practices in their pursuit of elite-ledglobalization. The core characteristics of the new global economic system include forcedpolicy homogenization, favouritism towards transnational corporations over local solutions,and incorporation of national elites into global structures despite democratic deficits andwholesale corruption.

Current critical accounting perspectives on globalization, founded primarily on Marxistand postcolonial accounts of imperialism, are ill-equipped to explain the operations ofa genuinely global economic system. According to both the original ‘Leninist’ (Lenin,1960 [1916]) and the subsequent ‘Wallersteinian’ (Wallerstein, 1979) versions of thesetheories, the contemporary international capitalist system was marked by a fundamentalspatial as well as class cleavage.1 However, this spatial cleavage is of declining significancegiven the end of formal colonialism and the collapse of the Soviet bloc. The emergenceof the Chinese, Indian, and other formerly imperialised economies as serious players inthe global capitalist system is difficult to explain in a spatial theory of domination. AsMarx predicted, the capitalist system is tending to become genuinely global: “[i]n placeof the old local and national seclusion and self-sufficiency, we have intercourse in everydirection, universal inter-dependence of nations” (Marx and Engels, 1969 [1848], 112). Theglobal era of capitalism is marked by the deterritorialization of capital, by the integration ofnational elites into a transnational policy compact, and by the emergence of transnationalquasi-governance structures. A critical explanatory framework for capital’s new era mustabandon notions of an organic alliance between the “nationalist bourgeoisie” in developingcountries and global working classes, as the commonality of interest that existed betweenthese two groups in Lenin’s time is no longer present. It should account for the emergence ofa transnational capitalist class (Sklair, 2001), the development of transnational cross-sectoral

1 The spatial cleavage in ‘Marxist’ theories of imperialism is not present in Marx’s original thinking; indeed it isa significant and arguably entirely inconsistent revision of Marx’s theory (Brewer, 1990). Since Marx’s model ofcapitalism hinged on the outcomes of relationships at the point of production, factors such as imperialism must besubordinate to and derivative of this relationship, which is not the case in either Lenin’s or Wallerstein’s model. InLenin’s model imperialism is dialectically integrated into the capitalist edifice, while in Wallerstein’s, the spatialrelationship of domination operates as a separate structure of domination. Lenin’s model had considerable meritfor its era, but is not applicable in a global, post-imperial era. Wallerstein’s model has serious theoretical andempirical weaknesses (Skocpol, 1977).

716 J. Murphy / Critical Perspectives on Accounting 19 (2008) 714–740

elite alliances encompassing the public, private, and not-for-profit sectors (Murphy, 2005),and the establishment of a nascent governance structure for a global economic system.

The theory of global managerialism which illuminates this article is discussed in detailelsewhere (Murphy, 2006b). Briefly, it argues that the dominant stratifying feature of con-temporary society is the unequal distribution of power, of which possession of economiccapital is only one, albeit important, feature. Society is dominated by an interconnectedpower elite (Wright Mills, 1957) drawn from different fields, possessing various formsof capital in varying combinations (Bourdieu, 1986), and coalescing through consciousnetwork-building (Rischard, 2002) and common ‘habitus’ (Bourdieu, 1994). The locus ofelite formation and solidarity is moving beyond the national to the transnational arena(Robinson, 2005). This arena is increasingly structured by transnational institutions thattend to establish discipline through governmentality (Foucault, 1991) rather than throughovert force, and operate primarily through networks rather than formalized hierarchicalstructures (Hardt and Negri, 2000). The fluidity of the system permits new actors to beincorporated into the power elite and institutional networks, avoids entrenched conflict andallows problems to be ‘ring-fenced’ and resolved without creating oppositional “chains ofequivalencies” (Laclau and Mouffe, 1985).

My argument is illustrated empirically through presentation of three interrelated‘moments’ in the construction of this global order. The first is the meteoric rise of Lak-shmi Mittal’s Ispat steel empire on the back of global World Bank-mandated steel industryprivatization. The second moment is the integration of a formerly state socialist elite – thatof Kazakhstan – into global economic and political networks. The third moment ties thefirst two ‘moments’ together, and focuses on the specific example of the purchase by Ispatof Kazakhstan’s giant Karmet steel plant, and its restructuring with IFI support.

The documentary elements of this article are based upon documentary analysis and fieldresearch carried out over several years in Kazakhstan and the UK.

2. Critical accounting perspectives on globalization

The debate about globalization within the critical accounting movement has natu-rally been influenced and illuminated by the debate in broader progressive circles, andindeed in wider popular culture. What might be called the “traditional left” originallyquestioned an apparent fetishization of the far-reaching and unstoppable character ofglobalization, used by ‘Third Way’ political tendencies to justify wide-ranging ‘market-friendly’ policies, and particular privatization and the elimination of economic regulation.The ‘global-inevitabilist’ analysis has been challenged by Callinicos (1989), Hirst andThompson (1996), and others. Essentially they argue that the globalization phenomenonhas been greatly exaggerated, that there is no certainty that the trend towards liberalizedinternational markets will continue as there is a history of cyclical ebbs and flows in inter-nationalization, and that nation states have the ability to regulate economies if they chooseto do so. Globalization rhetoric is intentionally or unintentionally responsible for restrict-ing political options, and must be challenged in order to restore the democratic abilityof citizens to choose among a wide range of options for organizing their economies andsocieties.


This point of view is forcefully expressed by Arnold and Sikka (2001) in their analysis ofthe failed international bank BCCI. The authors argue that capitalism has always operatedglobally, and that the return to globally integrated financial markets in the past decades ismerely a return to the normal operation of capitalism interrupted between the 1930s andthe 1970s as an outcome of the Great Depression and the threat to capitalism’s survival.Nevertheless, in order to operate, capital needs the state to structure social and economicrelations. The decision of national states not to intervene in the BCCI debacle until thebank’s situation had become untenable was itself a political choice. National regulatorsguarded information that if it had been shared with homologues would have clarified thatthe bank was involved in various fraudulent and other criminal activities. Further, despite theheralded global presence of the large accounting firms, their corporate structures were actu-ally nationally based, which they used as an excuse to avoid sharing pertinent informationwith each other and with regulators. After the bank collapsed, the US Senate carried out anextensive post-mortem. However, its ability to extract information from foreign regulatorsand the accounting firms was due to its privileged position as an institution of the Americansuperpower rather the presence of any effective supranational financial governance system.Proposals made at the time for more effective regulation of both banks and auditors weremostly effectively resisted by corporate interests. To conclude, “[t]he nation states seem tobe advancing a particular kind of globalization, the one which prioritizes the interests offinance capital by pursuing policies of secrecy and covert deals” (498).

Cooper et al. (1998) also rely on Hirst and Thompson’s global-scepticism in their accountof the expansion of transnational accounting firms into the former Soviet Union in the earlypost-communist transition years. They note the fractionalization of the global accountingfirms in their approach to the former USSR, the tendency of firms’ national offices to dropexpansion plans at the first hint of difficulty, international firms’ focus on serving the needsof their multinational clients rather than carrying out groundwork building domestic clientsin the former USSR, and a strong tendency towards national stereotyping and patronisingviews towards collaborators from the former USSR.

It is notable that both Arnold and Sikka, and Cooper et al.’s accounts are derived fromresearch on events occurring in the early 1990s; global sceptic views are much less prevalentin research conducted more recently, and indeed Cooper’s orientation towards globalizationappeared to have shifted substantially by 2005 (Barrett et al., 2005).

More significantly, the data presented by the authors of both articles to explain theirscepticism could as easily support a ‘hyperglobalist’ perspective. While Arnold and Sikkado show that national regulators failed to control the BCCI effectively and declined to shareinformation that could have more quickly brought the organization’s improper activities tobook, they persuasively demonstrate the role of transnational accounting firms effectivelylobbying to maintain this ineffective and fragmented regulatory framework specifically tofacilitate unregulated transnational activities. The Marxist viewpoint they share, that capitalhas always searched globally to expand profits (479), is an early iteration of hyperglobal-ization. Elsewhere, Arnold (1998) explicitly located global developments as the motor forrestructuring of American industry:

“. . . monetary instability is not the product of “natural” laws of supply and demand inthe global foreign currency markets, but rather the changes in the political and insti-


tutional structure of the international monetary system following the abandonmentof the Bretton Woods Agreement. Within the context of twentieth century economichistory, Caterpillar’s industrial relations problems in the 1990s are not surprising;they are symptomatic of the collapse of the post-war capital-labour accord and polit-ical/institutional restructuring of the national and international economy under latecapitalism.” (670).

While Arnold and Sikka find supranational regulation non-existent or ineffective,Saravanamuthu (2004) focuses on the role of the World Bank as a supranational institutionthat through its loan and project practices establishes parameters for global development.Based on an analysis of reports of the institution’s internal operations audit department,she notes a consistent failure of the organization to live up to its own rhetoric about socialand environmental sustainability. Drawing from Porter (1995) analysis of the penetrationof quantification into social life, Saravanathamu argues that there is a conflict betweenthe Bank’s ‘social’ and ‘financial’ faces, and that despite the organization’s developmen-talist mission, the Bank depends almost exclusively on financial measures of success,such as the quantity of loans disbursed, etc., rather than on social and environmentalimpacts.

Annisette (2004), in a trenchant critique, challenges Saravanathamu’s perspective aspolitically “naıve”. She grounds her perspective in Wallerstein’s world-system theory (1976,1979) and its argument that there is, “a single ongoing international division of labour”(Annisette, 2004: 304). The role of the World Bank and the other transnational institu-tions is to maintain this international division of labour. Thus, the World Bank’s failure toeffectively address poverty is not an unfortunate outcome of excessive attention to financialquantification, but rather is hard-wired into the imperialist raison d’etre of the institution.The Bank’s activities in developing countries are geared towards extracting profits for thebenefit of the rich shareholder nations. Despite being exploited, developing countries havelittle choice but to borrow from the Bank because it is easily the largest source of develop-ment capital. Through the system of unequal exchange, injustice in the world economy hasdeepened and solidified.

Annisette captures many of the key features which make the World Bank a leadingvehicle for elite-driven globalization; particularly the institution’s ability to coordinate theglobalization drive (307). However, her attempt to fit her analysis within the constrictingand outdated framework of post-Leninist theories of imperialism leads her to underestimatethe Bank, which is a more complex institution than she acknowledges. Briefly, I will cri-tique five aspects of her analysis. First, her assertion that the World Bank was founded as a“conspicuously capitalist institution” (310) is at odds with the historical record; the Bankwas explicitly designed to accommodate socialist as well as capitalist economic systems,and Harry White, its main architect, was undoubtedly a socialist sympathizer if not a com-munist (Boughton and Sandilands, 2003). Second, Annisette’s characterization of financialexpansion as the Bank’s primary institutional driver is inaccurate. While in its early years,the Bank did primarily make loans for capital projects in a manner roughly comparable toa capital investment bank, by the early 1980s, the institution’s focus was on making loans(‘credits’) in return for policy reform. These carry a negligible interest rate; their purpose is


not to extract profits but rather to impose the Bank’s political economy on debtor nations.2

Thus, governmentality rather than profits lies at the heart of the Bank’s mission. Third,Annisette’s assertion that the Bank is not serious about poverty reduction would be newsto developing country governments obliged to recast all of their domestic policies to fit thecomprehensive framework of the Bank’s poverty reduction strategy. While the content ofpoverty reduction programming is problematic, there is little doubt that the Bank is seriousabout enforcing it (Cammack, 2002). Fourth, Annisette’s assertion of the desirability ofintroducing ‘participatory methods’ in Bank practices underestimates the extent to whichthe organization already practices client ‘participation’ (321). While Annisette castigates“development theorists” for their ignorance of “the social and institutional embeddednessof accounting” (317), she is apparently equally unaware of the extensive critical devel-opment literature problematizing the development paradigm and particularly its penchantfor participatory “tyranny” (Cooke and Kothari, 2001; Escobar, 1995). Finally, Annisette’sargument is built around the assertion that the Bank is at the centre of a system that servesto “freeze [developing countries’] economies, preventing them from transcending patternsof production set during the colonial era” (Annisette, 2004: 315), a statement impossibleto square with the rapid growth and transformation of China, India, and other developingcountry economies.3

Neu and various collaborators have written the most extensive and most nuanced accountsof globalization within the critical accounting tradition. Neu’s work on globalization can betraced to his exploration of the meaning of accounting in the colonization of Canada’s abo-riginal people (Neu, 2000). Neu’s analysis is based on three theoretical conceptualizations;Foucault’s theory of governmentality, postcolonial and imperialist theory, and genocideliterature. In a series of subsequent articles (Graham and Neu, 2003; Neu and OcampoGomez, 2006; Neu et al., 2002), Neu and his collaborators also focus on the World Bank asa key coordinating institution of globalization. These latter analyses introduce Bourdieu’stheories of fields, habitus, and multiple forms of capital (1994), as well as Dimaggio andPowell’s theory of institutional isomorphism (1983) into the analytical framework. Theresult is a rich, albeit incomplete account of the engine of contemporary globalization.

In contrast to Annisette’s attribution of the World Bank’s power mainly to financial mus-cle, Neu and colleagues concentrate on the Bank’s ability to use its human and social capital(perceived expertise and networking centrality) as well as economic power to write itself

2 The Bank’s lending operations to sovereign states are divided into two components; full interest loans toemerging market countries such as Brazil, China, India, etc., and low interest loans (called credits by the Bank)to the poorest countries. Some countries, such as India, access both streams but most either borrow from one orthe other. In normal circumstances, the first group of countries have various alternative sources of capital, and theBank is unable to attach any meaningful conditions to these full-interest loans. The Bank uses the resources that itextracts from the full-interest loans, as well as direct grants from shareholder nations, to finance the low-interestloan program to the poorest countries. These loans, which are integrated with IMF surveillance of the country,come attached with a panoply of conditionalities which are effectively obligatory, as not only Bank and IMFassistance, but also bilateral aid programs are tied to compliance (Murphy, 2005).

3 China’s steel production grew 300% between 2001 and 2005, while India’s is expected to grow 262% between2006 and 2020. Refereed publications by Chinese academics have increased 40-fold in the past twenty-five years,while Indian research publications, from a much larger base, have increased two and one-half fold in the sameperiod (Business Standard, Mumbai, July 31, 2006, 8).


at the centre of a globalization “consensus” that enables “supranational organizations tostructure the cross-border flows of much more than capital” (Graham and Neu, 2003: 452).They emphasize the crucial role of information in the Bank’s strategy, creating the oppor-tunity to ‘name’ the new global system and thus legitimize the extension of a hierarchicalsystem across ever-broader fields of human activity (Neu et al., 2002: 275–276).

Another significant difference between Neu and Annisette’s analysis is his assertion thatglobalization is more than simply the rearticulation of the interests of the hegemonic nationstates on a supranational basis; the supranational, embodied by the World Bank, developsa persona of its own, “outside of the direct control of even the largest and most powerfulindividual states” (Graham and Neu, 2003: 451).

Neu and collaborators do not, however, fully exploit the wide-ranging implications ofthis insight. If globalization does represent a fundamental recasting of the hegemonic nationstate perspective of Marxist theories of imperialism, this calls into question the fundamentaldivision of the world into imperialist and imperialised nation states. If supranational insti-tutions are beginning to operate independently from nation states, this implies developmentof a transnational social structure and in particular emergence of a nascent global elite.

In this section, I have reviewed critical accounting perspectives on globalization,focussing specifically on accounts of the role of international financial institutions andparticularly the World Bank. I argued that critical approaches characterizing globalizationas a form of imperialism are outdated because of the emergence of globally-importanteconomic bases in developing countries. A post-imperial global order requires governanceinstitutions of a new type, of which the World Bank is a prime example. I hypothesizedthat this new global economic system would be reflected in the establishment of a globalmanagerial elite straddling transnational public and private sectors. Mapping the emergenceof such an elite (Sklair, 2001) permits the recovery of class analysis from its submersionwithin imperialism theory’s “single ongoing international division of labour” (Annisette,2004: 304).

In the next section of this article I employ transnational class analysis as a frameworkfor exploring a case study examining the emergence of a transnational corporation in thepost-imperialist global order, and the key role played by institutions of transnational gov-ernmentality in facilitating the emergence of new power centres and genuinely footlooseglobal entrepreneurs. The grwoth of Lakshmi Mittal’s steel empire demonstrates the inter-twining of private interests, nation states, and transnational governance institutions in thenew global order.

3. The meteoric rise of Lakshmi Mittal’s Ispat empire

3.1. Origins

Lakshmi Mittal’s steel empire has its roots in Ispat Industries, a medium-sized Indiansteel producer founded by his father, from a prominent Marwari trader family (Hardgrove,2004). Ispat Industries saw moderate prosperity in the highly regulated ‘licence raj’ eraof early post-independence India, where the steel industry was and remains dominatedby state-owned plants. In 2004, it had a market capitalization of approximately US$ 135


million, making it the 158th most valuable Indian private company and the country’s 7thlargest private steelmaker (Business Today, 2004).

Lakshmi Mittal went to Indonesia in his early twenties to supervise Ispat’s first foreignventure, a steel plant which opened in 1976 (Bist, 2004). He never returned to India tolive, and in 1989 leased a state-owned steel plant in Trinidad with a publicly undisclosedpurchase option (Parliament of Trinidad and Tobago, 1990, 1992). He purchased a Mex-ican state-owned plant in 1992, and exercised his option to purchase the Trinidad plantin 1994. In 1995, he and his father split their business, with Lakshmi retaining all of theinternational operations under the LNM (Lakshmi N. Mittal) Group umbrella consistingof LNM Holdings (a privately-held company) and Ispat International (a publicly tradedcompany), registered in the Caribbean tax haven of Netherlands Antilles and in the Nether-lands, respectively.4 The group expanded quickly through a series of acquisitions of mainlystate-owned steel mills, beginning with the Karmet purchase in 1995 which I examine moreclosely below. In late 2004 Ispat simultaneously purchased a large private American steeland restructured, creating Mittal Steel, the world’s largest steel producer (Bream, 2004: 1),a remarkable achievement given the company had only begun its international expansion15 years previously.

Corporate offices are in London, where Mittal now resides. At the time of the restruc-turing, he paid himself a US$ 2 billion dividend. A British newspaper claimed in 2004 thatMittal was easily the richest individual living in Britain with a total wealth of around £12billion (he still travels on an Indian passport) (Milmo, 2004: 12), and in March 2005, Forbesranked him the world’s third richest person, with a personal worth of US$ 25 billion, anincrease of US$ 18.8 billion in 1 year (Forbes, 2005: 166).

3.2. Ispat, the World Bank, and the allure of state property

Mittal’s relationship with the World Bank dates back to his first purchase of a formerlystate-owned steel plant. Six months after acquiring the Trinidad steel plant (built in 1980 ata cost of US$ 460 million) from the government for US$ 70 million, in 1995 Mittal (througha holding company Seolak Investment Ltd., registered in the British Virgin Islands) wasgranted a US$ 27.3 million loan by the International Finance Corporation (IFC), a WorldBank subsidiary, covering about 20% of the costs of upgrading the plant to increase itscapacity and improve environmental standards.

The Trinidad government was required to privatize state industry as a conditionality forreceipt of IMF and World Bank financing beginning in 1988 (ILO, 2000). A senior officialfrom the IMF negotiating team resigned, claiming the IMF had deliberately exaggeratedthe parlousness of Trinidad’s economic situation, making it impossible for the countryto secure private financing, thus forcing it to rely on IMF financial support and followits dictates (Budhoo, 1990). The structural adjustment program led to social unrest andan attempted coup d’etat in 1990 (Meighoo, 2003). The Trinidadian case highlights thecrucial and controversial role of the international institutions in providing an accountingjustification for neoliberal globalization.

4 Corporate information accessed at www.ispat.com on August 5, 2004.

http://www.ispat.com/


Between 1991 and 1997 Mittal purchased steel plants from state owners in Mexico,Canada, Germany, Kazakhstan, and Ireland, as well as smaller private plants in Germany andFrance. Ispat’s first foray into the former Soviet bloc, the 1995 acquisition of Kazakhstan’sIspat Karmet, was by far the largest of Ispat’s early round of acquisitions. I examine thiscase more closely below.

In 1998, Ispat bought the giant private sector Inland Steel operation in Chicago, for US$1.43 billion. After Inland, Ispat reverted to purchasing ailing publicly-owned steel plants indeveloping and transitional countries, with the policy support and/or financial underpinningof international financial institutions. In 2001, it bought the Romanian state-owned steelproducer Sidex, which alone accounted for 4% of Romania’s GDP. That deal provokedsubstantial controversy in the United Kingdom when it was revealed that Prime MinisterBlair had urged the Romanian government to accept Ispat’s bid, a few months after Mittalhad made a £125,000 donation to Blair’s Labour Party. Britain also supported an EBRD loanof US$ 100 million to help LNM Holdings purchase the plant, against American opposition(Grice, 2002).

The scandal led to media enquiries into a mutual support network involving seniorLabour politicians and Indian expatriate businessmen including Mittal. In 2001, Labour’sthen Minister for Europe, Keith Vaz, had launched an Anglo-Romanian Action Groupgeared to promote privatization of state assets in Romania. Vaz, who has described him-self as “a leading member, if not the leading member, of the Asian community in thiscountry” (Vasagar, 2001) had received £5,000 in contributions to his 1997 election cam-paign from Usha Mittal, co-owner of LNM Holdings and wife of Lakshmi Mittal (Murphy,2003: 22). Mittal participated as Vaz’s guest of honour at a 2002 British governmentdinner for Kazakhstan President Nursultan Nazarbayev, shortly before the World Bankextended another loan to Ispat Karmet (Murphy, 2002). Nazarbayev attempted to haveMittal named Kazakhstan’s honorary consul to Britain, but the idea was dropped afterthe controversy regarding Mittal’s relationship with New Labour. In 2002, Vaz was sus-pended from the House of Commons for misleading MP’s about his financial dealings withother expatriate Indian businessmen (House of Commons, 2002). Mittal let it be knownthat he felt much of the criticism leveled at him was, “tinged with racism” (Economist,2002: 62), a perspective repeated widely in the Indian press (Gupta, 2002; Kanavi,2004: 50).

Also in 2001, LNM Holdings bought an Algerian publicly owned steel plant and relatedassets (Metal Bulletin, 2001). Post-independence, the Algerian government, along withothers in North Africa and the Arab world, had pursued a state-led economic developmentstrategy. Since the 1980s, the World Bank and IMF had been pressuring Algeria to reversecourse. In 1994, it agreed, and support for a privatization process was included in the Bank’s1997 structural adjustment loan (World Bank, 1997). Privatization proceeded slowly, leadingthe Bank to extend a further loan to hasten privatization (World Bank, 2000). The govern-ment’s Alfasid steel plant was subsequently privatized to LNM Holdings, with a reportedtax vacation. In 2003, the World Bank subsidiary IFC provided the newly Ispat-owned plantwith a US$ 25 million loan. The IFC explained its loan as, “supporting the government’songoing privatization program by participating in a highly visible and successful privati-zation” (IFC, 2003). The cycle is similar to that in Trinidad: the IFIs play a triple role, asa country’s ‘external auditors’ providing a pessimistic accounting of the nation’s finances,


as ‘management consultants’ offering advice on necessary policy changes, and as bankersboth providing capital and leveraging other public and private funds.

In 2002/2003, LNM Holdings acquired the formerly state-owned steel plant in Nova Hut,Czech Republic. Although the country has been following a privatization program sincethe end of Communism in 1989, large industrial plants were difficult to privatize; they wereoutdated, had large and organized workforces that could not easily be displaced, and weremajor polluters, and thus unattractive to most potential investors. However, closing NovaHut was politically dangerous due to the large number of jobs at stake, and its iconic status.As part of the negotiations for entry into the EU, the Czech government was pressured toend subsidies (European Commission, 2002: 37–48). Given the central place that accessionplayed in the development strategies of the Central European states, this pressure wasessentially irresistible.

As in other former Communist states, the World Bank invested in the Czech transitionprogram, providing a US$ 450 million structural adjustment loan in 1991. In 1997, Nova Hutreceived a US$ 250 million IFC loan for facilities upgrading and restructuring in preparationfor privatization; the loan was syndicated to various other financial institutions includingthe EBRD. The loan made the World Bank the Nova Hut plant’s largest creditor (Bulkacz,2004).

Mittal paid the government US$ 6 million for 52% of the plant and promised to investUS$ 242.8 million over the next 10 years. LNM announced its total investment in the plantin purchase price, share acquisitions, debt assumption, and investments would be over US$900 million. The deal was conditional on the Czech government assuming various of theplant’s debts, the transfer of tax credits to Ispat, and continued operational subsidies in anundisclosed amount (Ispat Nova Hut, 2003: 49–60).5

The privatization to LNM Holdings had been proposed by the World Bank’s IFC asearly as 1999 (Cattell, 1999). However the government had already extended a part-purchaseoption to a company controlled by Nova Hut managers. The government cancelled the optionin 2000. Subsequently the managers’ company successfully sued the Czech government forunlawfully canceling the deal. Court documents reveal the World Bank had pressured thegovernment to cancel the deal (CTK Business News, 2004).

In its first year of Ispat ownership, the Nova Hut plant reported a US$ 170 million profit.In August 2003, when the new owners announced plans to take the company private, itsshares had appreciated more than three-fold in the 6 months since privatization (Reuters,2003). In an unusual twist, the Czech government’s counter-espionage Security InformationService (BIS) warned of the rise of non-transparent business interests registered in offshoretax havens in the privatization process, specifically naming the Nova Hut privatization asproblematic (BIS, 2003).

Poland’s steel industry presented similar challenges. Southern Poland’s large plantsemployed thousands but depended on state subsidies and suffered environmental prob-lems; both issues became part of EU accession negotiations. The World Bank providedPoland a 10 year, US$ 280 million loan in 1991 to help design, finance and implement

5 The European Union eventually permitted $222 million in subsidies to Nova Hut for the years 1997–2003. Itis not clear how much of these resources flowed through to Ispat and in what form.


an overall privatization program, along with several other more general structural adjust-ment loans. In 1997, the EBRD provided a US$ 25 million loan for more privatizationpreparations.

The Polish privatization deal was concluded on October 2003 with Ispat emerging suc-cessful over US Steel. It was reported LNM Holdings would repay US$ 406.9 million in thecompany’s accumulated debt, “possibly on a discounted basis”, and the operation wouldreceive another D 670 million in state subsidies in return for reducing output by 15%, asagreed by the European Union. The Ispat deal contravened the Polish government’s ownprivatization law requiring privatizations to include an agreement with trade unions (Koza,2003). After completing the Polish purchase, Mittal obtained a US$ 100 million loan fromIFC for environmental and general upgrading of all the plants in the privately-held LNMHoldings arm of the Ispat empire6 (IFC, 2004).

The Ispat group’s corporate structure drew attention from within and outside the steelindustry.7 Although Mittal’s companies had a single website, www.ispat.com, and he and

6 LNM Holdings also owns the South African steelmaker, ISCOR, not discussed in this paper.7 As noted above, the Mittal empire was restructured in late 2004.

http://www.ispat.com/


the multilateral banks invariably described the steel operations as a single entity, the overallgroup was nowhere legally incorporated, but rather was divided into two nominally inde-pendent holding companies, LNM Holdings and Ispat International. LNM was privatelyheld by Mittal and his wife, and registered in the Netherlands Antilles tax haven. IspatInternational, while majority owned by Mittal, traded on the New York stock market andsubject to the accounting requirements of both the Netherlands and the NYSE. Until therestructuring, all Mittal’s acquisitions in the former Communist states, as well as IspatAnnaba in Algeria, were part of LNM Holdings, while the Western country plants as wellas Trinidad and Mexico were part of the publicly-traded Ispat Industries.

The role of offshore tax havens in international economic affairs has received atten-tion from critical accounting and critical management scholars (Hampton and Christensen,2002; Mitchell et al., 1998; Sikka, 2002). Sikka demonstrates that corporations and wealthyindividuals have long used tax havens to avoid taxes and shield their activities from scrutiny.However, the importance of offshore tax havens has increased exponentially in recent yearsin line with rising transnational economic activity. The Mittal case provides useful data onthe corporate use of tax havens and the contradictory response of international institutionsputatively charged with eradicating them.

In 2000, the OECD named 35 countries operating as tax havens, improperly permittinglarge companies to avoid taxation, because of “a lack of transparency”, “laws or adminis-trative practices that prevent the effective exchange of information for tax purposes withother governments on taxpayers benefiting from no or nominal taxation”, and “absence of arequirement that the activity [by the company in the jurisdiction] be substantial”. The WorldBank and the EBRD were asked to collaborate in eliminating these ‘harmful tax practices’(G7, 2001).

As noted earlier, Mittal has made extensive use of tax havens. The British Virgin Islands(BVI) – on the original OECD tax haven list – provided the corporate base for his firstforay into purchasing steel plants being privatized under international institution pressure.The World Bank provided Mittal’s BVI subsidiary with a loan in 1994 to upgrade hisTrinidad plant. BVI belatedly agreed to comply with OECD transparency guidelines in2002. Mittal’s larger purchases of formerly state-owned steel plants, mainly in transitionaland developing countries, were grouped under LNM Holdings, registered in the NetherlandsAntilles, another tax haven listed by the OECD in 2000 as non-compliant with internationaltax standards (Weschler, 2001). Netherlands Antilles promised to reform its practices by2005, and was taken off the tax haven list in 2001. However, in the meantime, both theWorld Bank’s IFC and the EBRD had provided LNM Holdings companies with additionalloans.

In this section, I have traced the Mittal steel empire’s rise, fuelled by acquisitions ofprivatizing steel plants, mainly in developing and transitional countries. These acquisi-tions were marked by several consistent features. Countries were pressured to privatizeby international financial institutions as a condition for receiving loans needed to repayforeign institutional investors. International financial institutions helped restructure coun-tries’ steel industries to make them more attractive for purchase. Subsequent to purchase,several Ispat plants received loans from the World Bank and other international financialinstitutions. In at least one case, the Bank successfully intervened against a domestic con-sortium to pressure the government to sell to Ispat. Loans to Ispat’s LNM Holdings arm


by the Bank and the EBRD ignored undertakings by both institutions to help eliminate taxhavens.

In the next sections of the article I will examine the case of Kazakhstan more closely, fromtwo perspectives. First, I explore the role of international financial institutions in establishingthe ‘appropriate’ parameters of a newly capitalist society. This helps to contextualize thesubsequent section, focusing on the specific case of the privatization to Ispat of the country’slargest industrial installation, the Karmet steel plant. Together, these sections provide afairly detailed exposition from macro- and micro-perspectives of processes inherent in theconstruction of a managed and homogenised global order.

4. Cultivating Kazakhstan

In this section, I begin by briefly describing the globalist trajectories of the two major IFIactors in Kazakhstan, the World Bank and the EBRD, before discussing the policy advisoryand socialization vehicles they used to ensure the Kazakhstan elite’s compliance with theterms and conditions of the new global order.

The World Bank, along with the International Monetary Fund (IMF), was establishedas part of the Bretton Woods agreement of 1944, in which the Allied powers establisheda framework for a post-war economic order designed to avoid the economic crises of theinter-war period that were believed to have contributed to political and civil destabiliza-tion, the rise of fascism, and ultimately world war. The two institutions were financed bysubscriptions of all member states but the United States contributed most of the upfrontcapital and the US dollar served as the effective global reserve currency. After the with-drawal of the Soviet bloc at the onset of Cold War, the United States enjoyed a qualifieddominance of the institutions, which it retains today (Boughton and Lateef, 1995; Kapuret al., 1997). The World Bank’s role was to provide capital for reconstruction and devel-opment for states unable to access funds through internal resources or capital markets.The IMF’s main role was to assure the stabilization of the world currency system. Since1944 both organizations have greatly expanded their activities, in the case of the IMF byexercising a disciplinary surveillance function over countries’ internal economic manage-ment, and in the case of the World Bank by expanding its development remit to cover everbroader aspects of developing countries’ social and economic organization (Cammack,2002). In the emergent transnational governance system, the Bretton Woods institutionsact as ‘external auditors’ of countries’ economic policies, as ‘bond raters’ of countries’economic prospects, as financiers of last resort, as leverers of private and public sectorcapital, and as ‘management consultants’ in recommending suitable economic reforms.These recommendations range in scope from broad macro policy to details of individualprivatizations.

The two organizations work closely together, and countries wishing to be part of the Bret-ton Woods system must join both. Only a handful of ‘rogue’ states are not members. TheWorld Bank’s success led to the spawning of numerous regional and subregional develop-ment banks organized on similar principles, including the European Bank for Reconstructionand Development (EBRD), founded in 1990 to help former Communist countries navigatethe transition (Culpeper, 1997; Weber, 2001).


The collapse of the Soviet bloc presented the development banks with opportunities theyhungrily grasped. Both the World Bank and the EBRD have been involved in Kazakhstansince shortly after the Soviet Union’s collapse, with the primary goals of dismantling theformer state-owned economic system and integrate the new privatized economy into a globaleconomy. This mission is inscribed in the EBRD’s raison d’etre: “the Bank shall assistthe recipient member countries to implement structural and sectoral economic reforms,including demonopolization, decentralization and privatization, to help their economiesbecome fully integrated into the international economy” (EBRD, 1990: Article 2.1).

In 1993 the World Bank produced a comprehensive document, Kazakhstan: The Tran-sition to a Market Economy, outlining its expectations. It argued that: “[t]he Governmentwill need to manage a program that entails the progressive privatization of virtually theentire productive economy” and carry out full, “price liberalization and the implementationof a trade framework where there are no quantitative restrictions on exports nor imports”(World Bank, 1993: iii–iv). The Bank envisaged three main vectors for intervention inKazakhstan: balance of payments support during early transition shocks, “project financ-ing”, and “technical assistance”, a significant element of which “will need to take the formof training”.

It urged Kazakhstan to establish its own currency (25), emphasized that the right toemployment would “have to go” (54), implicitly endorsed discrimination against ethnicnon-Kazakhs (137), urged the government to cut public sector employment (58), proposeda reduction in both wages and unemployment benefits (59) and the implementation of wagecontrols (60), complained about the “elaborate network of social protection” for “pensioners,the disabled, families with many children, single mothers, and the unemployed” which“the country cannot afford to maintain” (92), called for user-pay health care (103) andelimination of household energy subsidies (123), recommended Kazakhstan’s integrationinto international accounting systems (71), emphasized regulatory changes to attract foreigninvestment (72), opposed the initial program of privatization of state enterprises to workercollectives (78–80), and proposed in conjunction with USAID and the EBRD an alternative“detailed program of privatization” (74) open to foreign investors.

Key prescriptions included rapid privatization of almost all enterprises (78), although itdid acknowledge the absence of a consistent and impartial legal framework for conduct-ing business (70 and 71), and the “strong bias” towards privatization to “unaccountablenomenclatura-led group structures” (81), which “might affect the population’s attitude toeconomic reform” (85). However, corruption is only mentioned once, referring to the dan-gers of retaining a state planning economic model (iv). The main risk facing Kazakhstanwould be, “[f]ailure to speed the reform process” (38).

As a middle income country, Kazakhstan can only borrow from the World Bank at near-market rates. Although the Bank has extended about US$ 2 billion in sovereign loans sinceindependence in 1992, the current portfolio is a relatively insignificant US$ 250 million.Since 1993, the Bank’s IFC private-sector loans subsidiary has extended US$ 350 millionin 21 loans and private-sector equity positions in Kazakhstan-based projects,8 with the IspatKarmet US$ 76 million loan and US$ 5 million equity the largest single investment (Decker,2004).

8 http://www.ifc.org/ifcext/eca.nsf/Content/Kazakhstan InvestmentProjects, accessed on August 3, 2004.

http://www.ifc.org/ifcext/eca.nsf/Content/Kazakhstan_InvestmentProjects


In 2002, EBRD claimed to be “the largest foreign investor in Kazakhstan outside the oilindustry”. By 2004 its loans to several dozen private ventures in the country exceeded US$1 billion. The largest borrower is Ispat Karmet; EBRD originally approved D 182 million inloans, but the company drew down only D 52.6 million.

Kazakhstan secured substantial IMF balance of payments support in the early transitionyears, and again in 1998 to deal with the Asian and Russian economic crises, but repaid allits IMF loans in 2000 and is unlikely to require further support (IMF, 2003).

A crucial attraction of ending state socialist rule was the opportunity for elites tobenefit directly financially from their social dominance (Kagarlitsky, 1992), and partic-ipate freely in global elite networking (Lane, 1996). Networking opportunities occurredin a variety of ways including participation in formal transnational governance struc-tures, integration into the global corporate system, and through structured socializationopportunities. The IFIs play an important role in each of these three elite globalizationchannels.

The demise of the state socialist bloc resulted in the dismantlement of the parallel inter-national institutions that had been sponsored by Moscow, including Comecon9 and theWarsaw Pact. All the former Communist countries joined the World Bank, the IMF, andthe EBRD shortly before or after the collapse of the socialist bloc. Kazakhstan and theother ex-Soviet Central Asian republics are members of the Asian Development Bank. In2004, eight countries formerly in the socialist bloc joined the European Union. Formersocialist bloc countries also participate in wider networks including the Organization forSecurity and Co-operation in Europe and the Council of Europe, though the latter refusedKazakhstan’s admission due to its poor democratic record. Several former republics of theSoviet Union are part of the World Trade Organization, and others, including Kazakhstan,10

are negotiating admission.Beyond the formal institutional framework of global managerialism, integration occurs

through absorption into commercial networks, which also provide financial opportunitiesfor the transforming elites. Multinational corporations are active throughout the economiesof Kazakhstan and most other former Soviet republics and hold a dominant market positionin a number of areas, including consumer goods and industrial machinery. Direct foreigninvestment has been substantial, though concentrated in the natural resources and metalssectors, and often enjoying a troubled relationship with state actors mainly due to endemiccorruption (Peck, 2004).

Kazakhstan’s financial sector has been proactive in reaching out for foreign backing,permitting finance-based groups to capture increasing shares of a rapidly growing economy(Pirani, 2004), even though the IMF has adjudged Kazakhstan in material non-compliancewith international standards because of the absence of separation between the state and theKazakhstan banking sector.

Numerous members of the former Communist elite have resurfaced as private businessplayers, though only rarely have they entirely broken their ties with the state (Murphy, 2006a;Olcott, 2002: 162–167). One of Kazakhstan President Nursultan Nazarbayev’s sons-in-lawis thought to own a controlling interest in both the country’s largest bank, Kazkommertsbank

9 The Council for Mutual Economic Assistance (CMEA).10 See http://www.wto.org/english/thewto e/acc e/a1 kazakhstan e.htm, accessed on May 10, 2005.

http://www.wto.org/english/thewto_e/acc_e/a1_kazakhstan_e.htm


(Peck, 2004: 243) and Halyk Bank, the third-largest (Pala, 2005a), while the chief execu-tive of Turan-Alem, the second-largest, was found dead in a suspicious ‘hunting accident’in December 2004 after publicly associating with the political opposition (Bekenov andKarajanov, 2004). Nonetheless foreign private banks (Pala, 2005b) and the transnationaldevelopment banks have been lining up to provide capital to assist the development andgrowth of integrated financial-industrial conglomerates. The IFC provided loans of US$ 10million and US$ 25 million to the largest Kazakhstan bank, Kazkommertsbank, in 1996and 1999, and US$ 12 million in loans and equity to Turan-Alem Bank, the country’s thirdlargest bank. EBRD provided D 20 million in loans and equity to Turan-Alem in 2001 andD 30 million in equity to Kazkommertsbank in 2003. In addition, both EBRD and IFC pro-vided over D 230 million between 1998 and 2003 to Almaty Merchant Bank, Halyk SavingsBank, Turan-Alem and Kazkommertsbank, among others, to guarantee loans to supporttrade, small and medium size businesses, and agri-business. In 2004 and 2005, EBRD staffproposed three further loan and equity infusions in Kazakhstan banks, including a D 27.5million equity infusion to Kazkommertsbank and an increase in EBRD’s equity stake inTuran-Alem.11

The IFIs proved lenient in their attitude towards clear evidence of corruption in theprivatization process. Western support to Kazakhstan’s privatization program was jointlyco-ordinated by the World Bank, USAID and the EBRD. The head of USAID’s privatizationprogram in Kazakhstan defined the partnership’s criterion of success:

“The success was defined in that a large number of assets were sold off. We weren’tdefining success in terms of transparency. There was some kind of transparency ofthe process . . . Of course in Kazakhstan it wasn’t the same as say Britain . . . it didallow for a fair amount of kleptocratic operation.” (Linden, 2000).

Corruption was often on a large scale, directly touching leading figures in the stateadministration:

“According to the [U.S.] Justice Department, payments totaling US$ 115 millionflowed from the accounts of numerous U.S.-based oil companies to a private accountin New York held by a Swiss bank by way of several offshore locations. Fromthis account, investigators believe Giffen12 transferred at least US$ 60 million toSwiss accounts overseen by [President] Nazarbayev, former prime minister AkezhanKazhegeldin, and his successor, Nurlan Balgimbayev, who currently heads the state-owned energy company Kazakhoil.” (McKeeby, 2000: 1).

In 2002, Kazakhstan Prime Minister Imangali Tasmagambetov admitted that a secretpersonal bank account had been held in Switzerland since 1996 by President Nazarbayev,containing state funds valued at around US$ 1 billion; however he said it had been establishedpurely to prevent a financial crisis from destabilizing Kazakhstan, and was used to save the

11 http://www.ebrd.org/projects/psd/index.htm, accessed on May 10, 2005.12 Giffen, an American former consultant to the Kazakhstan government, was indicted in 2003 for channeling

kickbacks to President Nazarbayev and his close associates on deals that Kazakhstan signed with US oil companies.Giffen’s trial was still continuing in May 2005. Earlier a Mobil executive was sentenced to a three year prisonterm in a US court for a related offence.

http://www.ebrd.org/projects/psd/index.htm


country from bankruptcy, but he did not provide any more specific account details (Reuters,2002). Tasmagambetov’s revelation came after a Swiss prosecutor revealed he was pursuinga criminal investigation against Nazarbayev.

The transnational banks also draw post-Soviet elites into appropriate ways of thinkingthrough training, international exchanges, and provision of international consultants. Inthis vein, the World Bank is “refocusing” its work in Kazakhstan towards “policy dialogueand knowledge transfer”.13 Despite its favourable economic situation, the Kazakhstan gov-ernment continues to solicit substantial funding for training its public and private sectormanagers, and to bring in international consultants from the multilateral banks and otherinternational institutions:

“Kazakhstan has received considerable technical assistance and training by the Fundin virtually every area of economic policy, including through about 75 technicalassistance missions provided during 1993–2002 by FAD, MAE, STA, LEG, and theIMF Institute. In addition to short-term missions, the Fund has provided advisors . . .

Other international agencies and governments, including the World Bank, EU TACIS,EBRD, UNDP, OECD also are providing a wide range of technical assistance” (IMF,2003: 30).

The Bank’s training arm, the World Bank Institute, operates a centre located in Almaty,geared to “providing learning programs and policy advice in economic managementand poverty reduction, environmentally and socially sustainable development, financialand private sector development, human development, infrastructure, and knowledge fordevelopment”.14 The World Bank and EBRD, together with four other multinationalinstitutions and the Government of Austria, run the Joint Vienna Institute (JVI), which“provides training for officials of Central and Eastern European countries, the formerSoviet Union, and former centrally planned economies in Asia”.15 Since 1992 approxi-mately 15,000 officials have attended JVI’s courses. Courses on “economic and financialmanagement and administration” are provided free of charge by each sponsoring orga-nization, subject to participants’ nomination by their government and invitation by thesponsor.

In this section, I have detailed the objectives and practices of the international finan-cial institutions in post-Communist Kazakhstan. The IFI’s pressed Kazakhstan to remodelits economic and social structure in their image of a liberal free market. In return,the country’s integration into global and regional networks would be facilitated, andKazakhstani corporations’ efforts to raise capital internationally directly and indirectlysupported. Leading Kazakhstani private and public sector officials would benefit frominternational training and networking opportunities. The IFIs overlooked the kleptocraticnature of the privatization process and the intertwining of state and private interests. Itis within this context that I turn to Lakshmi Mittal’s acquisition of the Karmet steelplant.

13 Information posted on the World Bank’s Kazakhstan website http://www.worldbank.org.kz/, accessed onAugust 4, 2004.14 “About WBI”, accessed on the World Bank Institute’s website at www.worldbank.org/wbi/ on August 4, 2004.15 Information accessed at http://www.imf.org/external/np/ins/english/JVI.htm on August 4, 2004.

http://www.worldbank.org.kz/

http://www.worldbank.org/wbi/

http://www.imf.org/external/np/ins/english/JVI.htm


5. Rescuing Karmet

Ispat’s purchase and renovation of the Karmet plant, supported by the IFIs, is a point ofintersection with the macro process of Kazakhstan’s integration into the global capitalisteconomy. I will explore how Karmet was transformed from a symbol of the victory ofstate socialism, into a poster child for Kazakhstan’s integration into a new IFI-shapedprivatized global steel industry. The Karmet privatization launched Lakshmi Mittal into theranks of globally-significant steel producers, but also proved advantageous for the IFI’s andKazakhstan’s ruling elite alike.

The Karaganda Metallurgical (Karmet) steel plant was established during the SecondWorld War in the central region of the Kazakh republic of the Soviet Union, northwest of thecoal mining and gulag centre of Karaganda. By December 1944 the first open hearth furnacewas operational; the workers’ effort led the newly named town of Temirtau (Kazakh for IronMountain) to be awarded the Red Banner of Labour (Nazarbayev, 1985: 13–16). The plant’sfavourable location and Soviet reliance on heavy industrial development fuelled continualexpansion, albeit aided by forced labour and appalling working conditions (Temirtau, 2004:6). By 1991 Karmet was one of the five largest steel plants in the Soviet Union with anannual capacity of 6 million tonnes of liquid steel (IFC, 1997), and one of the 25 largestindustrial facilities in the USSR. Kazakhstan’s president, Nursultan Nazarbayev, started hiscareer at Karmet, and is still closely associated with the plant.

The Soviet Union’s collapse quickly led to crisis at Karmet. The Soviet Union’s integratedmarkets disappeared overnight. Production declined by more than half between 1992 and1994, often offloaded on credit or in barter arrangements. A management contract with USSteel failed to halt losses (Levine, 1995). In 1995 the government cancelled that contract(Moskovskie Novosti, 1995) and sold the plant for about US$ 310 million to Ispat,16 inthe country’s largest privatization. Ispat also purchased nineteen coal mines that supply thesteel facility, iron ore mines that in 2003 supplied 55% of the plant’s needs, as well as twolarge hydroelectric generating facilities that provide the substantial amounts of electricityrequired for production (IFC, 1997).

The details of Ispat’s purchase are controversial. The leading western scholar on Kaza-khstan categorizes the Karmet privatization as suspect (Olcott, 2002: 140), however theWorld Bank claims that the privatization was the result of a “competitive” process. The Kaza-khstan representative of the European Bank for Reconstruction and Development (EBRD),while lauding Ispat, implied that the privatization process was non-transparent: “As far asIspat Karmet goes that was during the Kazhegeldin17 era privatization and so there was nota great deal of transparency for privatizations in general in that period” (Davey, 2003).

An analysis of the purchase chronology shows it is indeed virtually impossible that acompetitive bidding process could have taken place. The US Steel-led management teamtook over the plant in July 1995 (Gotova, 1995: 9). The Kazakhstan government stripped

16 Varying figures ranging from $50 million up to $420 million have been cited in different documents.17 Akezhan Kazhegeldin was prime minister of Kazakhstan from 1994 to 1997. After declaring his intention

to contest presidential elections he was accused of corruption and went into exile, from where he has returnedthe favour by spearheading a markedly successful and well-documented campaign to tar President NursultanNazarbayev as corrupt. See for example, New York Times, 28 July 2000, p. A5.


it of the management contract on November 1 (Moskovskie Novosti, 1995: B9), awardedmanagement of the plant to Mittal’s group 8 days later (American Metal Market, 1995:3), proclaimed a decree authorizing privatization of the plant another 8 days after that onNovember 17th, and agreed to sell it to Mittal 1 week after that (Izvestiia, 1995: F1). Oneanalysis concluded:

“. . . creditors had no opportunity to satisfy themselves as to the terms and conditionsof sale, the notice arrangements, or to participate themselves. These circumstances,coupled with a comparison of Karmet’s replacement cost (usually estimated far inexcess of $1 billion) to the bid obtained ($50 million), create substantial concern asto whether the auction actually realized the best available value for Karmet’s assets.

Analysis of the third Karmet decree shows a disregard for the structure and sub-stance of Kazakh bankruptcy law and a subversion of a basic purpose of that law andthe Foreign Investment Law, namely the protection of the rights of creditors generallyand of foreign investors in particular.” (Pentsov et al., 1996).

In 2002, the BBC investigated various aspects of LNM Holdings’ operations, concludingin part that:

“Mr. Mittal gave US$ 100 m to the controversial Chodiev group for its help in thepurchase of a steel plant in the former Soviet republic of Kazakhstan. Key membersof the Chodiev group are said to have had business links with organized crime in theformer Soviet Union. (BBC, 2002).

Ispat’s Karmet operation was initially financed through loans from a consortium led byABN-AMRO Bank, secured against contracts and purchasers’ letters of credit (Youssef,2003). However, shortly after consolidating its acquisitions, Ispat approached the WorldBank’s IFC arm and the EBRD for a substantial capital injection to pay for restructuringand upgrading the operations. The parties agreed in 1997 on an overall investment programvalued at US$ 856 million, with US$ 365 million to be provided by multilateral bankfinancing (Decker, 2004). However, after the 1998–1999 Asian and Russian financial crisis,Ispat scaled back investment, drawing down less than half the loan.

Subsequently, Ispat Karmet benefited from three more IFI investments. In 1999 and2001, IFC advanced US$ 6 million to support two loan funds, one controlled by Ispatand the other by Kazkommertsbank, to be used to provide loans to small and medium-sizedIspat Karmet suppliers, especially those created through Ispat restructuring and outsourcing.As noted above, in 2004, IFC extended a US$ 100 million loan to Ispat to upgrade itsfacilities worldwide, including the Karaganda plant. Ispat managers state that the primaryadvantage of IFI involvement is reputational. The company is owned and managed mainlyby Indian-born people, which, “has advantages as we all come from similar backgroundsand can understand each other”, but at the same time “we have to prove that we can followinternational practices”:

“We are satisfied with our relationship with EBRD/IFC, it is not just the financing butit also gives us credibility, that we are not a fly by night operation. Once people seethere is a tie up with them, that creates an integrity bonus for us.” (Choudhary, 2003).


EBRD and IFC are also satisfied with their relationships with Lakshmi Mittal and theKarmet plant. For both institutions, Kazakhstan has been a difficult country in which to dobusiness, and the Ispat-owned plant, a stable money-maker from the beginning, is a raresuccess story. EBRD’s Kazakhstan country representative puts it thus:

“Ispat is an excellent example of what a well-disciplined and well-run enterprise canachieve. Really IFIs should not take any credit at all, but we do use Ispat as an exampleof our work here in Kazakhstan. Before we lent to Ispat in 1997, we did not have alarge impact in Kazakhstan.” (Davey, 2003).

Both the World Bank and EBRD have indeed extensively marketed their relationshipswith Ispat Karmet as examples of their effectiveness in promoting economic transitionin the former Soviet Union, presenting the details of their activities in numerous inter-national conferences and development donor fora.18 As detailed earlier in the article, theIspat/IFI relationship blossomed as the company acquired large steel plants in several for-merly Communist countries in east-central Europe, often receiving financing support fromEBRD and/or the World Bank.

In this section I examined Ispat’s purchase of the Karmet plant in Kazakhstan. Mit-tal’s corporation was prepared to take a large gamble in a difficult business environment.Although the IFI’s were not involved in the initial purchase, they came forward shortlyafterwards and made substantial loans to upgrade the plant. IFI support was important toMittal as it provided his company with a crucial reputational boost that made it easier to buyprivatizing steel plants elsewhere, and opened access to further public and private financing.The IFIs heralded their relationship with Mittal as a success story for their transition poli-cies. The purchase also proved beneficial for Kazakhstan’s elite; the company’s successfulrelaunching removed a major potential embarrassment for Kazakhstan president NursultanNazarbayev, and a US$ 100 million ‘facilitation’ payment was also apparently made in thecourse of the deal.

6. Conclusion

At the outset, I asserted that the various existing critical approaches that describe con-temporary economic globalization as a form of imperialism are inadequate in explainingkey dynamics in the contemporary global system. In modern imperialism theories, capitalistclass interests tend to fuse with the interests of the hegemonic state or states to create a sin-gle international division of labour. This spatially-centred system assures the subjugation ofnon-core states and their elites. However, the contemporary global economy is marked byseveral features inconsistent with this model. These include the fluidity of the global econ-omy marked by the growth of powerful economic centres outside the traditional hegemonicblocs, the emergence of international financial institutions as supranational convenors and

18 For example, http://www.undp.org/business/docs/ifc.ppt, http://www.ifc.org/ifcext/tatf.nsf/AttachmentsByTitle/DonorReport.pdf/$FILE/DonorReport.pdf, and http://unece.org/ie/industry/documents/gabor.pdf, allaccessed on July 31, 2006.

http://www.undp.org/business/docs/ifc.ppt

http://www.ifc.org/ifcext/tatf.nsf/AttachmentsByTitle/DonorReport.pdf/$FILE/DonorReport.pdf

http://www.ifc.org/ifcext/tatf.nsf/AttachmentsByTitle/DonorReport.pdf/$FILE/DonorReport.pdf

http://unece.org/ie/industry/documents/gabor.pdf


rule-makers, and the development of powerful transnational corporations operating outsidethe protection of the imperialist hegemonic powers.

In order to account for these developments, I argued that critical theory needs to hypoth-esize and test the emergence of a transnational order in which power and class relationshipsare being restructured on a global basis, creating a new order that I describe as globalmanagerialism. In global managerialism, public and private interests are intertwined, asdemocratically unaccountable international institutions establish detailed rules, norms, andstructures for international economic activity.

The Mittal steel empire is a highly relevant example to test the hypothesis. It lacks anyfirm geographical footing, with a small and movable headquarters operation. In place ofthe traditional relationship between multinational corporate and government elites withinthe hegemonic power as captured by Wright Mills’s Power Elite, Mittal Steel has a symbi-otic relationship with the international financial institutions. Where the American corporategiants entered foreign markets pre-structured by American military and financial dom-inance, Mittal’s operations followed in the wake of IFI-led economic restructuring andaccompanying privatization conditionalities. Within 15 years of being an insignificantsingle-country operator, Lakshmi Mittal’s firm became the largest steel producer in theworld, and Mittal himself among the three wealthiest individuals in the world. Mittal’splants received significant financing from the World Bank and its regional counterpart, theEuropean Bank for Reconstruction and Development, although as his executives underline,the primary worth of the IFI loans is reputational. The IFI imprimatur signals both to priva-tizing governments and to international finance houses that the Mittal corporation is a solidglobal player.

While the international financial institutions have achieved a certain notoriety in West-ern countries, their strategic involvements in developing and transitional countries havereceived relatively little critical scholarly attention. I selected Kazakhstan, the site of Mit-tal’s breakthrough acquisition, for closer examination of the modalities of IFI interventions.The IFIs’ overweening objective was to integrate Kazakhstan into the capitalist global econ-omy. This was achieved through presenting the country with a comprehensive compendiumof the changes expected to comply with global standards, funds to support the restructuringof specific industries in preparation for privatization, extensive international consultancyservices, and opportunities for numerous public and private sector officials to participatein international training and networking. Less overtly, the IFIs consistently overlookedoverwhelming evidence of corrupt practices in the privatization processes, and disregardedthe intimate intertwining of state and private power, even when this formally contravenedinternational standards. Along with Kazakhstan’s economy, its ruling elite was also to beintegrated into the new global order. This entailed a Faustian pact in which Kazakhstan’sformerly Communist elite was permitted to capture state assets for private use, in return foragreeing to reinvent itself as a mainstream capitalist class.

The Karmet steel plant privatization was tainted by the usual allegations of corrupt deal-ing. Of greater significance, Lakshmi Mittal’s Kazakhstan venture marked his company’semergence as a leader in a new breed of genuinely global corporations; his subsequentlarger acquisitions in Romania, the Czech Republic, and Poland were made possible by thereputational boost achieved through successful navigation of Kazakhstan’s difficult busi-ness environment. But why did Mittal succeed? To begin with, he probably did have more


courage – ‘was hungrier’ in corporate heroic vernacular – than executives of establishedsteel majors that considered and rejected Karmet. His management teams are built arounda nucleus of people of Indian origin, who are used to running low cost operations withrelatively outdated plant, in difficult governance environments. In Kazakhstan there was theadded advantage of his some of his managers’ familiarity with Soviet steel plants due tothe years of USSR-India cooperation, though this would have been no benefit in many ofhis other acquisitions.

Several features of Mittal business practices correspond to Mathews (2006) characteri-zation of a ‘new breed’ of multinational ‘dragon corporations’ that challenge the traditionalbusiness theory of the multinational firm. Like Mathews’s examples, Mittal leveragesadvantage from the globalization process itself, rather than growing internationally throughexercise of financial muscle built in a powerful developed country economy, as argued bytraditional multinational theory (and critical imperialism theory). In addition, Mittal Steel’ssmall headquarters operation resembles other dragon multinationals, as does the firm’s lever-aging of international networks – in Mittal’s case evidenced through connections with theIndian diaspora both as a source of managerial staff and to facilitate political positioning, andof course through the company’s symbiotic relationship with IFIs’ international privatizinginitiatives. However, Mathews, writing from a mainstream perspective, omits discussion ofinstitutional structuring and regulatory environment for economic globalization, which iscentral to my argument.

An outstanding question is why the IFIs have been so enthusiastic about Mittal Steel,assiduously promoting their relationship with the company, defending it against allega-tions of unfair business practices, and in the Czech case at least, intervening to pressurethe national government to sell to Mittal? The most obvious answer, which undoubt-edly has some validity, is that Mittal has shown he can ‘get the job done’. Though notwithout his detractors in the labour and environmental movements, from a business per-spective Mittal Steel has been an almost unmitigated success. Nevertheless, there areother international steel majors, notably Arcelor,19 that have also expanded aggressively,but that less frequently seem to win IFI-supported privatization auctions, and which aremuch less rarely held up as shining examples by the IFI’s. One speculative explanationis that IFI officials themselves identify with Mittal Steel’s authentic supranationality, itstotal reliance on the global systems of which the IFIs consider themselves the authentickeepers.

To what extent does my discussion of the Mittal–IFI relationship bolster or underminethe hypotheses I made at the beginning of the article? One multi-faceted case study cannot,of course, ‘prove’ broad generalizations about infinitely complex global developments. Itcan, however, illustrate the merits of particular ways of seeing the world in comparisonwith other approaches, and thus justify further exploration and refinement of the analyticalframework.

The first (negative) hypothesis, that critical imperialism theory cannot explain contem-porary globalization, is sustained in several ways. Whatever the processes involved, it is

19 In late 2006, while this article was in press, Mittal Steel and Arcelor agreed to merge in a deal that created theArcelor Mittal combine, three times larger than its next competitor and with a market share of about 18% of theglobal steel industry. Lakshmi Mittal has been named president of the new entity.


indisputable that on a single-firm level, Mittal Steel has become a substantial multinationalcorporation without leveraging any imperial advantage. This coincides with the successfulentry of many developing country-based companies into core global industrial manufac-turing and new technology businesses (O’Connell, 2004; Subramanian, 2005: 15). Thesedevelopments can no longer be dismissed as peripheral but are reflective of a definitivelypost-imperialist transformation of the world economy.

My second hypothesis was that international financial institutions play a decisive role instructuring the global order and in establishing the identity of a new global elite. This articleexplores two examples of this process. The first was the relationship between Mittal andthe international financial institutions. While it is important to note that, with one importantexception, the IFIs are not shown to have intervened in favour of Mittal during the actualprivatization bidding process, they consistently stepped in to provide loan support to plantshe had recently acquired. This was not merely a standard practice. The Ispat Karmet loanswere the IFIs’ largest in Kazakhstan, and in Romania the EBRD loan proceeded despite theactive opposition of the United States. In the Czech Republic the World Bank pressed thegovernment to breach a contract to enable the Ispat acquisition. The IFIs continued lendingto Mittal’s Netherlands Antilles-registered LNM arm in contradiction to their commitmentto the OECD and G7 to clamp down on the use of tax havens. When joined to the IFIs’ regularvaunting of the Mittal success stories, and the joint IFI–Mittal partnerships in operating smallbusiness loan funds to Mittal suppliers, it is clear that the relationship has been stronglymutually supportive.

The second example explored the role of the IFIs in helping to integrate Kazakhstan’sformer Communist elites into the global capitalist economy. I documented that the IFIs didnot merely establish criteria for receiving transitional support, but actively condoned thenon-transparent transfer of former public property into the hands of the governing elite. TheIFIs supported the personal integration of public and private officials into global businesscircles, and provided financing to the private enterprises created through non-transparentprivatizations and controlled by the country’s governing elite. At both the Mittal and atthe Kazakhstan elite levels, the case study provides strong evidence that the IFIs helped tostructure the rules of the new global game, and to choose its winners.

It is important to mention some cautions about what I am not arguing. I am not claimingthat a new global power system has somehow emerged from outside all existing powerstructures. The United States and other powers retain great weight in the world economy,even if that weight is diminishing. The international financial institutions themselves arestrongly influenced by their major shareholders, who are the major state powers. In symbolicpoliticized decision-making, such as on loans to post-invasion Afghanistan and Iraq, the USalmost inevitably gets its way, but on daily decision-making at the bureaucratic level, a moregenuinely globalizing dynamic tends to hold sway. Neither am I suggesting that LakshmiMittal’s success is purely attributable to either globalization or his relationship with the IFIs.Mittal is the scion of a prominent Indian entrepreneurial family. He attended the best schoolin his hometown Kolkata, and got his start running a spin-off from his father’s company,a significant Indian steel producer. His family is itself part of the Marwari community, afabled trader clan. Global elites are by and large built from national elites.

Finally, the article’s findings are of relevance to critical accounting in three ways. First,the article engages the discussion about the nature of globalization generally and of the role


of the World Bank specifically that has taken place on the pages of this and other scholarlyaccounting journals. It argues that the imperialism perspective, articulated by Annisetteand others, misunderstands the character of globalization and is thus unable to account forthe rise either of new economic power centres, or of footloose transnationals like MittalSteel. Second, it extends the attention Sikka and others have paid to the role of tax havens,whose official proscription but practical tolerance by transnational institutions constitutesa vehicle for the inequitable accumulation of globally-acquired wealth. Third, the arti-cle’s exploration of international financial institutions’ activities as emergent institutions ofglobal rule-setting raises several key research questions for critical scholars of globalizationgenerally, and critical accounting scholars in particular. These further research challengesinclude exploration of IFIs’ intersecting relationships with international accounting firmsand international accounting standards in transnational regulation, an area where cross-disciplinary work is already underway (Hallstrom, 2004). More broadly, critical accountinghas a key role in challenging the opacity and unaccountability of the international financialinstitutions as they go about building a global managerial order.

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