The Crisis of Neoliberalism and The Future of International Institutions A Comparison of The IMF and WTO

The Crisis of Neoliberalism and the Future of International Institutions: A Comparison of the IMF and the WTO Author(s):
Nitsan Chorev and Sarah Babb Source: Theory and Society, Vol. 38, No. 5 (Sep., 2009), pp. 459-484 Published by: Springer Stable URL: http://www.jstor.org/stable/40345665 . Accessed: 24/04/2013 11:11
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TheorSoc (2009) 38:459-484 DOI 10.1007/sl 1186-009-9093-5
The crisisof neoliberalism and the future of international A comparison of theIMF and theWTO institutions:
NitsanChorev Sarah Babb
2009 28 June online: Published Science+ BusinessMedia B.V 2009 Springer
intoquestion therelevance of is calling crisis ofneoliberalism AbstractThe current of andpossible We analyze theorigins, institutions. nature, impacts keyinternational Fund theInternational twosuchinstitutions: thecrisis Monetary comparing through in thepostWorld TradeOrganization (WTO). Bothoriginated (IMF) andtheWorld to as partof thetransition order and weretransformed WarII U.S.-ledhegemonic whiletheIMF and theWTO havebeenpartof We showthat globalneoliberalism. features have putthemon institutional their distinct thesame hegemonic project, in the two institutions' Historical differences different trajectories. significantly than theWTO, of ruleshaveplacedtheIMF in a morevulnerable position systems of globaleconomic contours cluesto thefuture which governance. provides ideas and policiesreigned Less thana decade ago, market-liberalizing supreme. markets has declineddramatically. of unfettered the popularity Today,however, is now once at thecutting LatinAmerica, revolution, edge of a globalfree-market anti-neoliberal elected on explicitly dominated platforms. governments by left-wing that excessive reliance haveopined andpolicymakers economists Around theworld, financial crisis. At worldwide causeofthecurrent was theroot markets on unfettered British of 2009, of theGroupof 20 (G20) headsof statein thespring themeeting Prime Minister Gordon Brown announced the death of "the Washington - thefamous that listof market-liberalizing Consensus" policyprescriptions guided 20 yearsof economic theprevious 2009). policy(Painter withitsriseare notall associated theinstitutions is dying, Yet if neoliberalism For example,the global economiccrisis has unexpectedly equally moribund.
N. Chorev (El) RI 02912,USA BrownUniversity, of Sociology, MaxcyHall,box 1916,Providence, Department e-mail: NitsanChorev@Brown.edu S. Babb Hall 509, 140 Commonwealth BostonCollege,McGuinn of Sociology, Ave, Department Chestnut Hill,MA 02467,USA e-mail: babbsa@bc.edu } Springer
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of the International improvedthe fortunes MonetaryFund (IMF), an organization long famous for the neoliberal policy conditions attached to its loans. In 2008, a cascade of financial crises in Eastern Europe and Iceland fattenedthe IMF's dwindling loan portfolio. At the same G20 meeting in which the Washington Consensus was declared to be defunct,the IMF was given a leading role in a new multilateralstrategyfor tackling global economic problems, and promised a quadrupling of its resources by member governments(Weisbrot et al. 2009). The recent prominence of the IMF contrasts starklywith the currentparalysis of the World Trade Organization(WTO), once an apparently unstoppable forcefor the liftingof barriersto trade and investment.Since 2001, the WTO has been stymiedby the stallingof the Doha roundof negotiations, mostlydue to intractable disputes between developed and developing countries.Consequently,the current crisis of neoliberalism raises many importantquestions about the international institutions currently governing the global economy: How did such institutions come to play a central role in the neoliberal order? What role, if any, have they played in fosteringthe crisis? And what is the likely future of international economic governance? This articleaddressesthese questionsthrough a comparativeanalysis of the WTO and the IMF. The two institutions World War II have their origins in the postIMF order: the was as established of the 1944 Bretton Woods hegemonic part and WTO in the the General on Tariffs and Trade agreement, originated Agreement in 1947. we show that the both institutions 1980s and Yet, 1990s, (GATT) during contributed to the shiftaway frompost-war "embedded liberalism" and became the two pillars of a global, neoliberal order.Led by the United States government, institutions' dominant both IMF and the the GATT/WTO were transformed member, in ways thatexpanded theirjurisdictionsand theirrespectivecapacities to intrude intonationaleconomic policies, and to incorporate countriesinto a global systemof economic rules. These rules, which imposed far greater market-liberalizing than those of the obligations postwar period, subsequentlybecame a focal point forcriticism and resistance. Notwithstandingtheir common neoliberal agenda, we argue that the two institutions have historically-rooted differencesin their systems of rules, which have stronglyshaped their experiences of the currentcrisis. Concretely,distinct contributeto systems of rule-making, rule-applicabilityand rule-enforcement differences in the institutions' mechanisms for responding to dissatisfaction among its members: whereas the IMF's rules encourage disgruntledmembers to "exit" its rules by abstaining from IMF resources, the WTO provides effective incentives for remainingwithin the system. They also have created differences in the two organizations' respective appeals to legitimation:whereas the IMF relies more heavily on its technocratic reputation, the WTO depends on in turn,have generated procedural legitimacy.These contrastingcharacteristics, different criticisms of each institution and different very strategiesof resistance members. We in that conclude of the IMF's recent reby disgruntled spite it is the WTO that is the more of two institutionsto the emergence, likely remain a source of transnational rules for national economies, and that institutionsresembling the WTO are likely to represent the future of global economic governance.
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Worldorder,hegemony, and international institutions WarII period, multilateral Sincethepost-World institutions suchas theIMF,World the international Bank, and GATT have played a role in governing economy. theseinstitutions to multiple grant Although formally participation governments, relations theorists have notedtheir intimate to the connection manyinternational - the that has dominated theinternational ofthestate arenasincethat time hegemony States United 1974;Gowan (cf.Waltz1979;Baldwin1993;Wallerstein government 1999; Shaw 2000; Cox 1987). is a form of domination thatis In the classical Gramscian sense,hegemony coercion or force, as neo-realists wouldargue, but maintained notsimply through and achievedby meansof moraland intellectual also through consent, leadership materialcompromises (Gramsci 1971; Cox 1987; Burawoy 2003). For neoa hegemonic worldorderreliespartly relations international Gramscian scholars, - including itsmilitary and its state of a dominant on thematerial might capabilities ideas and economic power. However,hegemonyalso depends on dominant thepowerrelations which"reflect and on institutions, collective prevailing images, collective to encourage at the pointof originand tend,at least initially, images with thesepowerrelations" consistent (Cox 1986,p. 218). In thisview,institutions of hegemony becausethey and maintenance fortheconstruction are essential help concessionsto ideas and granting softendomination legitimating by diffusing forces. subordinate of U.S. hegemony were crucialforthe consolidation institutions International andthemaking WarII period. World thepostThrough judiciousnegotiation during Bankand theIMF,theWorld Nations attheUnited ofconcessions Council, Security of all interest as thegeneral interests couldbe presented sectional GATT,powerful order was based world a universal under policy(Gale 1998,p. 273). Thishegemonic modelof national on a Fordist-Keynesian (Cox 1987; Gill 2003), and it capitalism to institutions restedon the abilityof the IMF, GATT, and otherinternational withgradual fullemployment, domestic reconcile opening policyaims,especially of theinternational and liberalizing economy (Ruggie1982). its States reinvented ofthe1970s,theUnited crisis economic theworld Following world order to the liberal" "embedded thepost-war from bytransitioning hegemony and global capitalism model of neoliberalism (Morton2003, Reagan-Thatcher of and functions a changein theidentity 2005). This involved pp. 162-3; Harvey these their mandates to accommodate whichtransformed international institutions, trade Bank and IMF's loans and theGATT/WTO The World changes. ideological of and visiblerole in the formulation important playedan especially agreements worldwide.1 enforcement and in their to their neoliberal legitimation, prescriptions,
1 For moreon IMF and Simmons see Polilloand Guillen2005; Heniszet al. 2005; Nooruddin impact, rules of IMF-imposed et al. 2005. Manyproponents 2003; Ingram 2006; Barroand Lee 2002; Vreeland should be (Collier1997;Easterly as they arenotas effective that 2001,2006). Yet,theanalyses they argue that succeedin the also suggest IMF rulesfailin abouthalfof thecases inevitably thatshowthat they have at theWTO, as member-states is also apparent half(Dreher other 2002, p. 33). Economicimpact the havetaken to obligations adhere tariffs andotherwise reduced through they uponthemselves generally trade international agreements. } Springer
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in The hegemony crisisof the 1990s, like thatof the 1970s, was manifested both instrumental concernsover the stability of the neoliberalmodel and its forcapitalism, over thejustice of the and in normative concerns consequences A series of crises model forvulnerable and developingcountries. populations thatbegan in Mexico in 1995 and then intensified with the Asian financial meltdown of 1997-1998 encouragedand fed off a crisis of legitimacy and withcounter-hegemonic elitesand resistance authority, comingfrom progressive nationalist groups in developingcountries, global justice and otherpopular movementsworldFar Right (Robinson 2005, wide, and the anti-globalist resistance at thenational level as well p. 570). This counter-hegemonic operated as at the international in IMF the and the WTO. level, targeting particular in economists theUnitedStatesand elsewhere out Meanwhile, prominent pointed thatafter decades of reform, market-liberalizing policies had not producedthe benefits foreither economicgrowth or social welfare(Stiglitz2002, promised of further fromthe legitimacy detracted 2006; Rodrik2006). These criticisms neoliberal governance. Institutions draw authority and legitimacyfrom the broader hegemonic in which take project they part. Yet neo-Gramscianscholars agree that institutions also have life of their own, and they can become a may for tendencies (Cox 1986, p. 219). One reason why battleground opposing institutions elude the intentions of may hegemonic powersis thattheyare "path for reflect institutional dependent": they power;and previous legaciesand contests efforts to have a tendency to be self-reinforcing, the most powerful thwarting that reform them. Once in place, institutions constraints and impose opportunities betweencompeting (cf. Thelen 1999, 2004; reshapepowerrelations participants Thelenand Steinmo and Skocpol2002; Weir1992; Hall and Taylor 1992; Pierson international institutions 1996). Consequently, may deviate fromthe original of thedominant intentions statesthatdesignedthem, and even createspaces for the that balance of reflected (cf. Cox 1986, challenging power theyoriginally Gale 1998,p. 272). p. 219; becauseparticular institutions ofresources, and control different Moreover, types out of distinct institutional offer for grow legacies, they may varying opportunities and thus levels of crisis. At exhibit different of resistance, periods resiliency during themostgeneral the differences IMF and WTO of the between the out level, grew inherent of controlling access to different dynamics (Selznick typesof resources and Salancik1977; Oliver1991; DiMaggioand Powell 1983; Useem 1949; Pfeffer in thebusiness of moving 1993). The IMF is an international financialinstitution, amounts of of The for the Fund to control the behavior large money. logicalway member is financial on access to resources governments through conditioning to provideit on member particular policies.The IMF's dependence governments with thiscapital is reflected in a system of shareholder control andweighted voting In contrast, the WTO (and the GATT analogousto thatof private corporations. before It cannotuse moneyas an favorable access to worldmarkets. it) controls and its is rooted in the incentive, governance logic of ongoing diplomatic rather than has been shareholder control. each institution negotiations Although it the overall show that of the resources we also the controls, shaped by specific logic contours of thegovernance of thetwo institutions grewout of political dynamics
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- dynamics thatsubsequently in institubecamecrystallized states amongmember that weredifficult to alter.2 tional arrangements we show thatthe IMF and the WTO each had a In the sections thatfollow, to quitedifferent of its moment of crisis,and was vulnerable distinct experience or We arguethat three institutional of resistance. and forms criticisms dimensions, inthe ofinternational institutions thedivergent ofrules, experiences explain systems of rulesare: how rulesare made (rule making); neoliberal era. The three systems for andwhat mechanisms exist with therules(ruleapplicability); whohasto comply Each dimension with that rulesarecomplied represents (ruleenforcement). ensuring or consensuson theone handand consent, coercion a particular balancebetween between coercionand how the interplay Each illustrates on the other. formation, vulnerabilities and in a way that carriesdistinct consentis institutionalized and resistance. forcriticism opportunities of theIMF and theGATT in the thehistorical We beginby introducing origins thedesignof dominated theU.S. government WarII period. World Although postwerequitedifferent forrulemaking their bothinstitutions, procedures respective theUnitedStates, to shareholder withtheIMF beholden particularly governments, The scopeof modelof inter-state andtheGATTbasedon a diplomatic negotiations. MostGATT thetwoinstitutions. between also varied ruleapplicability significantly thepostwar rulesweresupposedto be followed although during by all members, a to thisrule.The IMF, in contrast, weremanyexceptions developed yearsthere and themuchstricter rulesof membership thelenient between division rather sharp - over time, exclusivelyto developing rules applied to borrowers contractual these respective countries. systemsof rules had littleeffecton the Initially, circumscribed GATT and IMF had somewhat since boththepostwar institutions, on their ofenforcement weakrulesandsystems andimposed relatively jurisdictions, wouldhave andruleapplicability inrulemaking thedifferences members. However, howtheIMF and examine We then to future developments. consequences profound in the 1980s and 1990s,whentheUnitedStatesled an GATT weretransformed of enforcement. and powers their substantive to broaden effort jurisdictions two on similar whiledrawing we showthat ideas,these market-liberalizing Next, distinct of neoliberal appealsto legitimacy, developed governance keyinstitutions and rule historical different whichwere shapedby their legaciesof rulemaking to somepolitical of rule-making The WTO system leverage provides applicability. and absentunderthe IMF procedures, whichis completely countries, developing whileIMF rulesapplyonlyto to all members, WTO rulesare applieduniversally sourceof theIMF and theWTO varyin their As a result, countries. developing - the IMF relies on technocratic while the WTO relies on expertise legitimacy - theWTO is a much - and in their degreeof policycoherence justice procedural than theIMF. "neoliberal" and consistently coherent less ideologically organization
of trade and finance, Another indicationthatpolitical compromises,more than inherentcharacteristics of determinedthe systemsof rules of the two organizationsis by the considerationand implementation means alternativesystems.Britishunilateralismunder Pax Britanica offersan example of an alternative toward trade opening (Webb and Krasner 1989; Pigman 1997). Another alternativeis to make trade the 1980s. Moreover, liberalizationa preconditionforloans, as practicedby the World Bank and IMF after we show below thatthe practice of "conditionally" was not part of the original charteror mission of the IMF, but was ratheradded later- largelybecause of political pressures fromthe United States. ) Springer 2
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In thethird features of theIMF and we examine how theinstitutional section, to each WTO have shapedthe content of criticism and the forms of resistance institution. The movement of theIMF and theWTO intotheprovision of a much moreambitious of rulesfor resistance national economies array ultimately triggered to bothorganizations, andto escalating from botheconomists andpolitical critiques leadersin developing countries. forcritiquing and Yet we show thatstrategies twoglobalgovernance Whereas these institutions havebeenquitedifferent. resisting criticisms of theIMF strike at theheart of its technocratic legitimacy, complaints abouttheWTO havebeenless damaging. Whileresistance to theIMF has assumed the formof "exiting" the system, WTO members have been using disgruntled In theend,we conclude to resolve their from within. "voice,"attempting complaints thatsystems of ruleswithWTO-likeinstitutional a more characteristics represent sustainable balance betweencoercionand consentand are therefore likelyto thefuture of globaleconomic represent governance (Fig. 1). The postwarorigins of theIMF and GATT AttheendoftheSecondWorld American andBritish War, negotiated policymakers the establishment of three institutions to help countries recover key international thewarandguarantee The first was from somemeasure ofglobaleconomic stability. for theWorld andlater wouldprovide loansfor reconstruction Bank,which post-war in The second was the and whichis notdiscussed thispaper. development projects, to control thespreadof International Fund(IMF), whichwouldattempt Monetary international economic a specialstabilization fund loansto crisesthrough providing countries from The third was the General deficits. suffering balance-of-payments the on Tariffs and Trade(GATT), whichwould help statesnegotiate Agreement reduction of trade in manufactured barriers goods. These international world institutions formed partof a U.S.-lednew hegemonic order(Gardner economicand 1980; Ruggie 1982). But whileserving compatible theIMF and GATT had significantly different of rules. roles, ideological systems Fromthevery thetwoinstitutions in their differed rulebeginning, considerably The IMF,butnotGATT,needed to accesstoeconomic resources making procedures. fulfill itsfunction ofproviding loansto countries in need.Thiscreated an important distinction betweenwealthy whichdonatedthoseresources, and poor countries, which not. It a did also created differentiation countries, quantitative among wealthy on their amount of contribution. IMF procedures countries, depending Accordingly, followedthe logic of a shareholder-controlled in which wealthy organization, - particularly - dominated countries the UnitedStates themaking and revision of rules(Pfeffer and Salancik 1977). Rule-making at were different the procedures GATT.The GATT did notneedfinancial resources to carry outitsmission, and so
of rulesand their on international institutions Fig. 1 Systems impact & Springer
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influence. could not be used as a sourcefordifferential contributions monetary withdecisions the GATT was designedas "member-driven" institution, Instead, A secondimportant difference of all participants. reached by a consensus formally In the of rule in distinct theIMF andGATT lay their between systems applicability. with borrowers alone were case of the IMF, the rulesof membership minimal, to all in rules In theGATT, contrast, formally to stricter applied obligations. exposed not the case. that was often evenifin practice member states, and rulein rule-making thesedifferences era, however, Duringthe postwar institutions as both on substantive had onlylimited outcomes, impact applicability ofenforcement weaksystems andimposed hadcircumscribed relatively jurisdictions Parties members on their (GATT). (IMF) and Contracting at theIMF and rule-applicability Rule-making of in 1944,theIMF Articles Woodsconference at theBretton Signedby 45 nations the to the U.S. rates their topegging itsmembers committed dollar; exchange Agreement To helpforestall togold. the dollar's inturn, United large convertibility States, guaranteed were that currencies national to helpstabilize a fund theIMF provided devaluations, fluctuations. to economic due deficits from balance-of-payments temporary suffering Statesandthe theUnited between of theIMF had beennegotiated The structure To Woods conference. provideloans for UnitedKingdompriorto the Bretton It was decidedthateach resources. theIMF neededaccess to financial countries, its financial that determines of the IMF would be assigneda quota member The to theIMF as well as its relative commitment quotasassigned voting power. This organizational size in theworldeconomy. relative werebased on a country's Boardinfluence on theIMF's Executive theshareholders whichawarded blueprint, The countries. favored withcapitalcontribution, commensurate wealthy inevitably all to the of of Agreement IMF's Articles decision-making power gave thegreatest of bloc the had which theIMF's largest votes,as United shareholder, largest States, Vries De and 1969; Block well as a vetoovermajorpolicydecisions (Horsefield 1977; Dell 1981; Mikesell1994). over the makingof IMF rules was distributed While influence extremely To entailed the obligations overwhelming. by theseruleswere hardly unevenly, the to currencies their to committed pegging countries becomemembers, merely or to theircurrencies, to trading barriers U.S. dollar,and to eitherremoving in the barriers such to remove IMF staff with consultations to regular submitting the U.S. the of theestablishment IMF, however, future (De Vries1987). Soon after ruleson to imposemuchstricter of rule-making utilizedthe asymmetric system for the U.S. ofthe1950s, At thebeginning borrowers. pressed a policy government as a condition reforms to macroeconomic had to commit borrowers policy whereby This Dell the IMF's resources(Block 1977; for receiving 1981). policy was controlled who that borrowers who believed taken up by IMF staff, enthusiastically Vries rules Woods to Bretton able to adhere werebetter inflation 1987). By the (De to of end of the 1950s,the Fund had a well-established policy "conditionally:" reforms to macroeconomic hadto commit from theIMF,a country borrow designed and the to crackdown on inflation, spending government reducing particularly contractual enforced through money supply. These rules were applied and
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To knownas Standby the IMF and borrowers, between Arrangements. agreements to cutoff andresources were that disbursements ensure phased, complied, governments fiscal andmonetary that from countries deviated (Babb 2007). targets pre-determined came countries industrialized becauseof thesestricter conditions, wealthy Partly that couldattract For countries to makelittle use of theIMF's resources. it,private thanthe sourceof financing and less intrusive a moregenerous capitalprovided was going to OECD IMF. By the 1960s, less than 10% of the IMF's lending debaclewiththe variousyears).Untiltherecent members (IMF AnnualReports, an IMF had received no wealthy industrialized Icelandicbanking country system, sincethe 1970s. arrangement at theGATT and rule-applicability Rule-making of trade was to establishan The originalpostwarplan for the governance International Trade Organization (ITO), witha broad mandateand an effective but The ITO was successfully foundation. multilaterally, negotiated organizational due to some controversial the ITO Charter, the U.S. Congress refused to ratify remained with thedemiseof theITO, signatories (Diebold 1952). With provisions on theGeneral what was initially conceived as a temporary Agreement arrangement: Tariffs and Trade(GATT). and to trade, barriers tariffs andother to reducing The GATTcommitted members - the"uncondiin international commerce treatment to eliminating discriminatory - requiring to one treatment" tional most-favored-nation any privilegegranted Buthow shoulda member's to be accorded to all other parties. contracting country of international Unlikethe IMF, the governance tariff reductions be determined? couldnot andittherefore resources trade relations accessto financial didnotrequire a of creating in weighted votes. The possibility formalize economicdisparities from of tradebarriers thereduction whichwouldregulate bureaucratic apparatus, In contrast to theIMF, whichcouldbe seen as a starabove,was neverdiscussed. the IMF and each individual between of individual relationships shapednetwork between ofbilateral relations as theinterweaving theGATTwas understood country, the was of a trade and another. The purpose one member state exchange agreement balancedreciprocity withU.S. negotiators of concessions, (Hudec emphasizing and reciprocaltrade 1990, p. 23). Given the focus on inter-state bargaining model.Agreea diplomatic followed of rule-making theGATT system openness, each concessions overthereciprocal in negotiations ments wereto be concluded offered in return to concessions would takeupon itself by the Contracting Party as well as which includedgeneralobligations otherParties.The agreements, would be approvedby consensus. to specificcountries, assignments particular was renegotiated oftheGATTin 1947,theAgreement theinitial Following signing fewyearsin "rounds" of multilateral once every negotiations. of ruleand theGATT's consensus-based The IMF shareholders' control system a U.S.-led At the states. to member different created IMF, very opportunities making their loansto impose needfor countries usedborrowers' coalition ofwealthy policy on the still had At theGATT,thesamecoalition on them. impact great prescriptions left this for exercising finaloutcome, but the strategies poor power necessary withsomeroomformaneuver. countries
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In the GATT, as in the IMF, wealthycountries' influence disproportionate in thesize of their from their as reflected markets. a stemmed The larger wealth, its threats market and sanctions, as well as its is, the more effective country's industrialized countries also had of concessions 2002). Wealthy (Steinberg offering that wouldallow a consensus to emerge: theinitiatives, control overtheprocedures and so on. These textsreflected the alternative texts, packages,draft proposals, them often set interests oftheoneswho drafted and,whileopento re-renegotiation, andCurzon1973;Finlayson and ofthedebate thecontours 2002; Curzon (Steinberg GATT ruleZacher1981; McGillivray 2000; Wilkinson 2000). At thesame time, to represent their interests members stillallowedless powerful procedures making of diplomatic theneed thanin theIMF. In therounds moreeffectively negotiations, had some leverage that thatevenpoor countries meant consensus to reachformal a particularly In themid-1960s, concessions. to gainsubstantial allowedthem during the countries established contentious relations, developing periodin North-South United Nations Conferenceon Trade and Development(UNCTAD), which such that wouldbenefit measures trade to introduce countries, developing attempted commodities. ofprimary theprices as stabilizing responded by Developedcountries a so-called rules.In 1971, forexample, intoGATT new conciliatory introducing togrant favorable countries ofPreferences Generalized (GSP) allowed developed System even from to imports conditions countries, developing coming (suchas lowertariffs) ofnon-discrimination. violated theMFN principle this explicitly though in a similar wereinconsistent The GATT'srulesof applicability way.On theone of to exclude countries andother theU.S. government many managed hand, wealthy industries theirkey protected steel, and many (including appareland textiles, At the same time, the processof tradeliberalization. from products) agricultural rulesthandeveloped morelenient to somewhat weresubject countries developing wereable to optoutofat leastsomeoftheagreements states andmember countries, countries to trade, whichmanydeveloping non-tariff barriers initially regulating The was quite circumscribed. chose to do. In addition,GATT's jurisdiction tariff led to quitesubstantial trade multilateral reductions, particularly negotiations withnon-tariff the early 1960s, but some countries after replacedthese tariffs licensesand quotas,"buy-national" such as import to trade, barriers procurement subsidies(Winham1986, p. 353; and government standards, product regulations, in to trade, non-tariff barriers Cohn 2002, pp. 60-61). The agreements regulating of enforcement The GATT's system loose and non-mandatory. weregenerally turn, of was constrained was also rather weak,as effective by theprinciple adjudication to delayorblockthe theability which consensual decision-making, gave defendants (Hudec 1993,p. 54). procedures as thescopeoftheGATT'sjurisdiction As we showin thenextsection, however, of enforcement well as its system radically changedin the 1980s, in parallelto at theIMF. similar changes on the IMF and GATT crisisand its effect The 1970s hegemonic inflation in the 1970s,economic heightened unemployment, stagnation, Beginning "social of the post-warlabor-capital led to the breakdown and indebtedness
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(Morton 2003, pp. 162-3; Harvey 2005). led a As partof the neoliberalturnat the international level, the U.S. government in broadeningand deepening of the abilityof the GATT and the IMF to intervene establishedthe World nationaleconomies. In 1995, the Uruguay Round agreements Trade Organization (WTO).3 The WTO covered numerous new realms of jurisdiction,required all members to adhere to the rules, and included greatly enhancedenforcement mechanisms.Meanwhile,the IMF's activitieswere expanded beyond the imposition of fiscal and monetary policies to the promotion of and governmental trade liberalization, "structural" reforms, includingprivatization, moved in the same neoliberal directionof facilitating reforms. The two institutions the dismantling of various formsof stateintervention, the spread of global markets, rules. set of supranational and the impositionof a deeper and more comprehensive reforms The IMF promotionof structural RichardNixon announced his New Economic On August 15, 1971, U.S. President of Policy,which includedthe closing of the Gold Window,and led to the elimination for reason theBretton Woods systemof pegged exchange rates the IMF's principal existence. However, the outbreakof the Third World debt crisis in the early 1980s breathednew life into the Fund and saved it frombecoming obsolete (Polak 1991). rates and a slowing global economy suddenlyraised the possibility Rising interest thatdeveloping countrieswould defaulton theirdebts to privatebanks, which they had accumulatedover the course of the previous decade. Most of these debts were in the United States. owed to banks headquartered When the Third World debt crisis broke out in 1982, the U.S. government widespreaddefaultand recognizedthatthe IMF was well positionedto help prevent a global financialcrisis,and it worked with the IMF to persuade both debtorsand creditorsto find a negotiated solution. As part of the agreement,private banks of theirclaims: developingcountries agreedto use the IMF as the centralcoordinator to enterlending arrangebut needed first could not negotiatewith banks directly, mentswiththe IMF (Cline 1995, pp. 205-8). The Fund's assumptionof the mantle enhancedits power over thepolicies of of creditraterand debt enforcer significantly for the Fund now acted as a gatekeeper to the private borrowinggovernments, resourcesas well. The "Baker Plan," a programof coordinateddebt reductionconceived of by U.S. and the IMF even further TreasurySecretaryJames Baker in 1985, transformed Baker's Under of the neoliberal agenda. turnedit into an active promoter program, and private banks would be made debt refinancing by the IMF and multilateral conditional on market-liberalizing including "the privatizationof policy reforms,
3 The WTO The General institutional. an informal was previously to what a formal organization provided overtheyears)is stillvalid. (as amended Agreement ) Springer
model. In spite of some and the abandonmentof the Fordist-Keynesian contract," however, this hegemonic crisis did not end U.S. predictions to the contrary, of U.S. the materialand ideological refurbishing dominance,but rather"facilitated hegemony" in the 1980s (Gill 2003, p. 89; see also Robinson 2005). As a consequence, "embedded liberalism" gave way to U.S.-led global neoliberalism
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the liberalization of domesticcapital burdensomeand inefficient public enterprises," the creationof more favorableenvironments markets, "growthoriented"tax reform, and trade liberalization(Baker testimony in U.S. Congress for foreigninvestment, 1986, pp. 595-6). Following the Baker Plan, the IMF dramaticallyexpanded its substantivejurisdiction.In 1986, the IMF inauguratedits "structural adjustment the loans for "structural reforms," facility"(SAF), designed to make longer-term termsof which were based on the Policy Framework Papers (Babb and Buira 2005). of macroeconomicpolicy conditions(which were In contrast to the older generation "structural also included in the newer IMF lending arrangements), conditionally" of national economies along neoliberal, marketwas to remake the architecture lines. friendly The Baker Plan also enhanced "coordinatedlending" between the IMF and the Bank and Fund lendingwould be based on a World Bank: fromthatpoint forward, common "policy framework paper," and the two organizationswould collaborate nationaleconomies (Dell 1988; Kapur et al. more closely on plans forrestructuring 1997, p. 764; Polak 1996, pp. 489, 502-3). This policy of coordinated lending betweenthe IMF betweenmultilateral lenders,combinedwiththe closer relationship theabilityof theIMF to enforcerules,since failing and privatelenders,strengthened of othersources of financing. to meet IMF policy conditionscould lead to a cut-off reforms The 1990s broughtevents thatcalled the efficacyof market-liberalizing this resultedin a further into question (see also below). At least initially, expansion of the IMF's jurisdiction.The biggest shock to the systemwas the Asian financial to lead to a crisis, which caused foreigninvestorsto lose money and threatened global financialmeltdown.Justas in the earlierThird World debt crisis, the U.S. stepped in to assume a centralrole, providingits own resourcesforthe government to do the same. Blaming governments bailout,and organizingotherwealthycreditor advocate the U.S. began to strongly the Asian crisis on weak domestic institutions, the inclusion of "governance reforms"in IMF programs.These were reformsin thatwould allow foreigninvestorsto make rational,informed national institutions investment decisions, including the development of independent judiciaries, law reform, banking regulation,and accounting standards.The U.S. bankruptcy lenders "limit or cut off lending also insistedthatthe IMF and otherinternational when governanceproblemsare severe" (U.S. Congress 1998, p. 143). Since 1998, banks have been heavily the Fund, the Bank, and the othermultilateral development national institutions involved in overhaulingand constructing through governancerelatedlendingconditions(Kapur and Webb 2000; Kaufmann2004; Babb and Buira 2005). - from trade These post-1980 reforms of the IMF's policy prescriptions liberalizationand privatization(beginning in the 1980s), to bankruptcylaw and them to distinguish (since the late 1990s) are termed"structural," judiciaryreform from the "macroeconomic" reformsthat remain alongside the newer structural and temporary, conditions.Macroeconomicpolicy conditionsare both circumscribed untouched. In contrast,structural arrangements leaving underlyinginstitutional is orientedtoward making deep changes in national economic and conditionality legal systemsthatare much harderto reverse.Once a companyhas been privatized, law has passed in Congress, it is to renationalizeit; once a bankruptcy it is difficult these rules were much more next to impossible to go back to the old law. In short,
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and much more intrusive, and aimed at diffusing neoliberal ambitious policies worldwide, radicallytransforming developingeconomiesto be more marketoriented. FromGATT to WTO The UruguayRound of tradenegotiations, which was launchedin 1986 and in 1994, brought of concluded abouta highly visiblechangein the governance theestablishment of a WorldTradeOrganization globaltrade: (WTO). Unlikethe In addition, the WTO's formal GATT,the WTO was a permanent, organization. was greatly a widerrangeof to include scope of substantive jurisdiction expanded than domestic itsrulesofapplicability weremuchstricter economic before, policies, and itwas moreeffective in enforcing therulesthat it applied. the Just likeprevious rounds of trade theUruguay Roundincluded negotiations, It also introduced to trade reduction oftariffs. newrules non-tariff barriers regarding andtightened andthe ones.The "crown however, existing jewels"oftheAgreement, mainreason "new theUnited theUruguay weretheso-called States initiated Round, issues"on services, and intellectual investment, property foreign rights. its The ReaganAdministration's theseissuesreflected insistence on introducing that had to resolve thosesectors determination trade deficit problems by advancing but thatwere restrained the potential of being internationally by competitive, The Administration and other barriers of foreign countries. domestic regulations wantedto make it difficult forgovernments such as local to imposerestrictions, It content or on American investors. requirements technology-sharing arrangements, to create a more climate for American services abroad favorable sought exporting forexample, it moredifficult to regulate or forforeign by making governments restrict theentry firms in areassuchas banking, of American telecommunications, health careprovision, andutilities. And it sought to protect theintellectual property and of American holders of patents and copyrights, suchas drugcompanies rights in entertainment the U.S. International Trade Commission 1988, companies estimated theannualloss to U.S. industry due to violations of intellectual property at billion Secchi Chorev 1997; 2007a). rights $40 (Preeg1995; Because companies to benefit, based in industrialized countries were expected there in the was little to the of issues G7 members inclusion these objection by Round. in were Uruguay strongly opposed:they Developingcountries, contrast, were net importers of capital,technology, and wantedto maintain and services, where that to theseissueswereconcerned. failure flexibility Theywerealso worried with in that the new issues would result retaliation comply regulations covering wouldaffect their ofmanufactured wanted thedifferent exports goods,andtherefore realms ofregulations to be separated. U.S. were However, negotiators quiteeffective in pursuing the"newissues"agenda, and threats to call off combining negotiations to levyretaliatory that it with attractive restrictions countries import against opposed the re-integration of tradein appareland textiles intothe concessions, including of the umbrella WTO 2000, p. 46; Preeg1995,p. 67). liberalizing (Dunkley theUruguay RoundAgreement on Tradein included an agreements Ultimately, Services(GATS), an Agreement on Trade-Related Investment Measures(TRIMs), andan Agreement on Trade-Related Intellectual (TRIPs). Combined Property Rights
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nowcovered trade international intheagreements, other with obligations obligations farmore deeplyintonationaleconomic a greatscope of rules,whichintruded GATT. policiesthantheearlier GATTagreements ofprevious loose applicability thesomewhat unlike Moreover, rule made to trade,a WTO "single undertaking" barriers coveringnon-tariff on couldno longer Member states to all WTO rules. thecommitment rely mandatory limits of their or on the bureaucratic level of economicdevelopment their legal to thatwould be too strenuous fromobligations to excuse themselves systems with. comply theapplicability andbroadening thescopeofjurisdiction to increasing In addition themeansof enhanced from GATTto WTO also significantly thetransition ofrules, mechanisms enforcement The WTO's morepowerful theseobligations. enforcing that withfarmore who realized advocated weremoststrongly by U.S. negotiators, wereneeded andprocedures morereliable areasofjurisdiction, intrusive disciplines enforcement to thisenhanced and Vermylen 2000). Strong opposition (Rosenthal theEuropean butalso from camenotonlyfrom Community countries, developing a forced andJapan (Preeg1995,pp. 35, 77-78; Hudec 1993).The U.S. government if means theuse ofunilateral ofjudicialization in support "consensus" bythreatening Round werenotimproved. themultilateral DuringtheUruguay judicialprocesses the U.S. thatallowed the U.S. Congressenhanceda provision negotiations, a trade under or deniedbenefits violated ifanother to retaliate country government their to reconsider even richtrading This convinced position partners agreement. (Preeg1995,p. 79). that existed is basedon rulesandpractices settlement of dispute The newsystem notto playalong. states formember theGATT,butitmakesitmoredifficult under of a can no longerblock the establishment defendants Underthe new system, are automatically the legal rulingsmade by tribunals binding,and tribunal, with whentheyfailto comply tradesanctions cannotveto retaliatory defendants member improved greatly (Hudec 1993,p. 3). Thesenewarrangements legalrulings of WTO agreements violations moreeffectively to challenge states'ability by other countries. of rules ComparingtheIMF's and WTO's systems became the 1980sand 90s, theIMF and theGATT/WTO As we have seen,during ideas andmarket-friendly of neoliberal thepromotion for policies majorinstitutions was accompanied theworld.This shared around however, by important trajectory, fromthe institutions' differences systemsof rule making,scope of resulting we drawon thehistorical In thissection mechanisms. andenforcement applicability, the between differences institutional themostimportant above to identify account to moreleverage poor We showthatWTO procedures two organizations. provide thatWTO obligations thanIMF procedures; states, countries applyto all member the in needof loans;andthat IMF obligations whereas applyonlyto poorcountries theWTO's mechanisms. than oftheIMF areless effective mechanisms enforcement of the forthedivergent of rulesareresponsible Thesedifferent trajectories systems that follows. in thesection we describe IMF and theWTO, which
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therules Making with the IMF has been a shareholder-controlled Since its founding, organization, TheUnited States has influence ondecisions allocated tocapital contribution. according In addition hadthelargest decisions. anda vetoovermajor share, always policy voting tothis is further formal thedominance oftheUnited States mechanism, by heightened othercircumstances. These include:the leadingrole of the U.S. dollar in the in Washington, international theIMF's location D.C.; thepractice monetary system; of dominant states of coordinating their at G-8 meetings before they present position attheIMF; andthetendency to them ofother shareholders (e.g.,Britain, Japan) major made(Buira2005; Woods2005; follow theU.S. leadwhen decisions arebeing major Babb andBuira2005). As a result ofthese U.S. initiatives factors, figure prominently in the inthehistory oftheIMF. As we haveseen,both macroeconomic conditionality in the1980sfollowed an American lead. 1950sand structural conditionality a different The WTO also awards a leading butthrough roleto theUnited States, setofinstitutional In contrast theWTO mechanisms. to theIMF,theGATTandlater in a formulated rounds of follow "diplomatic" underwhichdecisions are pattern, In are reached consensus. multilateral trade decisions by negotiations. theserounds, The logic of consensushas only partlyconstrained the abilityof the U.S. makesboth to imposeitswill on others. The size of theU.S. economy government which U.S. threats of sanctions and promises of benefits negotiators veryeffective, from someU.S. industries used to imposeliberalization on others whileexcluding were often more thesame fate.At thesame time,sincepromises concessions for from effective than ofsanctions, threat couldgainsomecompromises poorcountries theUnited countries were from States. the era,developing exempted During postwar some trade-liberalizing like the GSP were designed to and initiatives obligations makeat leastsome of their While the products internationally competitive. during made by UruguayRound the U.S. seemed able to ignoreany protestations have more countries middle-income developingcountries, recently, developing shown an unprecedented and In to to resist U.S. will, pressure. preparation capacity, theDoha Roundnegotiations, theU.S. agreedto relaxintellectual rules property overpharmaceutical as demanded products, by Braziland India,and in thecurrent it failedto get India and Chinato liberalize their sectors negotiations agricultural and Lakshmi (Faiola 2008). of rules Applicability The current-day ofIMF rulesfollows thepattern setin theearly application postwar for when rules were left ruleswere loose,butstricter period, membership relatively on governments thatappliedto theIMF forfunding. In thepost-Bretton imposed Woods era, theprincipal IMF are to make of remaining obligations membership to refrain from restrictions periodic membership payments, currency exceptwith IMF permission, and to allow the Fund to exertoversight it with by providing economic information. it IMF is not se that the has Hence, through membership per diffused neoliberal liberalize reform countries to trade, practices getting privatize, and so on. Rather, statesthatapply forIMF lending judiciaries, only member In themselves totheIMF's rules for their economies. arrangements subject reforming fi Springer
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thathave had to adhereto the it is onlydeveloping countries therefore, practice, rules. IMF's market-liberalizing - developed and developing alike. WTO rulesapplyto all members In contrast, in the in the1947 constitutive inscribed was already Whilethisprinciple document, to try to avoid found countries ofGATTboth goodreasons poorandrich early years the of thisprinciple. Hence,whenrichcountries negotiated rigidimplementation them as so-called constructed to trade, barriers of non-tariff reduction initially they to optout.Fortheir allowed(mostly which poor)countries agreements, "plurilateral" industries and oftenmanagedto exclude some protectionist part,richcountries liberalization. oftrade lawsfrom thegeneral waivesomedomestic Recently, process theWTO, Under has becomemore ofrules theapplication comprehensive. however, This to all WTO rulesmandatory. rulemadethecommitment a "single undertaking" from excusethemselves which couldno longer affected legal mainly poorcountries, ofeconomic or stages for their too strenuous development. legalsystems obligations to excludecertain still used diplomatic on their countries, negotiations part, Wealthy As we willsee below, liberalization. trade from suchas agriculture, however, sectors, evenforwealthy has madeit difficult mechanisms of thedispute thestrengthening international their with notto comply countries obligations. therules Enforcing the rules comes not only from of the IMF and WTO to enforce The authority ideas butalso from of theUnitedStatesand from material legitimating capabilities and Salancik over access to resources (cf, Selznick1949; Pfeffer havingcontrol may 1977;Oliver1991;DiMaggioandPowell1983;Useem 1993).Theseresources or theseinstitutions institutions be owned by the international themselves, may ownedbyother to resources 2002; as gatekeepers function (CorraandWilier parties and Salancik1977,p. 45). Pfeffer are the there are involved. of resources First, In thecase of theIMF, bothtypes and whichcan be lentto members thattheIMF owns directly, resources financial of theIMF's Sincetheestablishment from problems. balance-of-payments suffering to IMF access have been borrowers IMF the in of 1950s, granted conditionality policy economic forfollowing in exchange resources policies.Second,sincethe particular to serveas a its ability from considerable authority 1980s,the IMF had derived - from and banks own it not that does resources financial for U.S.) (mostly gatekeeper creditworthiness ofa country's on IMF certification which other investors, rely private suchas the multilateral other andfrom their lenders, whenmaking decisions, lending withall intoIMF lending mustenter countries Bank.Indebted World arrangements, other lenders. these with to negotiate theassociated conditions, of theselective to imposerulesthrough theIMF's ability channeling However, is control. Onefactor IMF haslittle the which over factors onexternal resources depends need dries When ofalternative the governments up,indebted capital capital. availability toprivate itssealofapproval theIMF toprovide andfor theIMF's ownresources, both tothe is noneedtoresort there is more when Attimes creditors. abundant, capital private IftheIMF resources. threat tocutoff ofthe the concerns factor IMF.Another credibility becausetheIMF has already in a government invested moreheavily becomes (often to engagein theIMF has beenobserved in a major a largeamount invested bailout),
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"defensive or "lending into arrears," new loans so thatthe lending," providing This canpayoff old onesinorder topreserve itsowninternational government image. makes more thestrong enforcement ofconditions andmakes borrowers likely unlikely, to flout IMF advice(Easterly 2006,pp. 225-31; GwinandNelson1997,p. 11). The WTO acquiresauthority a different kindof resource through managing favorable access to theworldmarket. namely, period, many Duringthepost-war countries to protect their from and ownmarket newly-established imports preferred werewillingto forego better access to foreign markets. subsequently Duringthe 1980s and 90s, however, mostof thosestatesabandoned their import-substitution and Once succumbed to theneoliberal policies competition. logic of international economiesstarted on a of economic as relying imports major aspect growth, in the GATT and laterWTO became a necessity, and previously membership reluctant Chinaand Russia,have eagerly askedto be included. countries, including in andprotection the WTO allows states to benefit from lower tariffs Membership that from non-tariff barriers means to trade. The Most-Favored-Nation any principle concession all member states. Nonto one has to be to other granted country applied in contrast, can be discriminated members, against.Statesmay,and do, enter bilateral and regional but them withaccess onlyto the these agreements, provide and manyof these markets of countries thatare signatories of thoseagreements, on WTO agreements (Chorev 2007b). The WTO, implicitly rely membership an that institution can secure, is effective to benefits no other therefore, gatekeeper and thesebenefits notonlythosein financial crisis. are of interest to all members, access Whereas the IMF andWTO both from members' to derive authority managing IMF their different. The mechanisms of enforcement are resources, respective quite rules a quasi-contractual the mechanism applies through developed during early postwar the letter of If the to criteria" intent. borrower fails to adhere the period: "performance in theletter included of intent, To theIMF may chooseto cut offdisbursements. IMF determine whether ornot arecomplying with ofthe borrowers the terms agreement, staff inmonitoring "reviews" ofborrower engages (Babband through periodic policies Buira2005). After the introduction of structural in the 1980s and 1990s, reforms the Fund foundit increasingly difficult to operationalize and monitor however, borrower to Structural reforms are both harder to measure and harder compliance. than macroeconomic reforms. can sometimes Governments do) fudge implement (and thefigures tothese on fiscal deficits andthemoney adherence supply; yetinprinciple, can In be measured. the of a state-owned contrast, privatization targets easily industry to accomplish, As sinceitneedstobe passedbya national maytakeyears legislature. a consequence of the rise of structural the Fund included reforms, increasingly - incremental "benchmarks" such as sending reforms, steps toward structural to the Parliament in letters of intent. The status of benchmarks legislation legal - is still whether or not theyshould formally be grounds for cutting off loans Forthesamereason, on "prior theFundnowrelies more actions," ambiguous. heavily in whichgovernments of mustmakespecified reforms evenbefore a letter signing intent and Buira the rate of because of these (Babb 2005). Apparently complications, with IMF In the era conditions has declined compliance (Kapur 2005, p. 41). ofstructural inshort, theenforcement ofIMF rules hasbecome difficult. reforms, quite Like theIMF, theWTO was expected in enforcing new to encounter difficulties realms such as The extended now covered economic obligations. jurisdiction
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- that oninvestment, andintellectual subsidies, property protection regulations required In contrast action. to theIMF, and at times contentious, governmental complicated, Ifa state on member "bilateral it states' believes theWTO relies however, monitoring." violation of WTO obligations, it can filea state's becauseof another suffers injury A paneloftrade rules onwhether or for experts bya WTO panel. adjudication complaint should make the the tocorrect hasoccurred andwhat not a violation respondent changes a panelcan allowthe withthedecision, failsto comply If therespondent violation. onthe member trade sanctions inthe toimpose violating (Maggi dispute complainant(s) therate ofcompliance orcomplex ofoverly theexception issues, political 1999).With is impressively 2005,2008). high(Hudec 1999;Chorev have an advantageous countries Not surprisingly, positionin judicial wealthy 2005; Busch and Reinhard 2004, p. 548; Bown and Hoekman (Smith proceedings and legal expertise and greater access to information 2002). They have better able to afford the costs of administrative Furthermore, theyare better capacity. decisiontheyhave a witha negative and in cases of noncompliance litigation, of retaliation. theconsequences to withstand Theyalso have the capacity greater interests. And yet,WTO dispute their reflect of substantive benefit legal rulesthat to raise their forweakercountries also providea forum settlement procedures to theUnitedStates, forrichcountries, and make it difficult including concerns, and Barbuda violateWTO rules(Chorev2005). In one famous example, Antigua In and betting. Internet U.S. laws that gambling prohibited successfully challenged Bush's at theWTO againstPresident another case, eightstatesfileda complaint thesetariffs The WTO panelruledthat on steelimports. of hightariffs imposition withmorethan$2 billionin trade threatened wereillegal,and whencomplainants also on the the tariffs. Bush lifted may have an effect sanctions, Legal disputes arenotonly for themselves. subsidies, example, Agricultural negotiations diplomatic buthavealso becomea cause forlegal oftheDoha round at thecenter negotiations, withtheWTO theUnited Brazilhas won a case against States, Recently, disputes. to itscotton subsidies theU.S. government industry illegal. declaring panelists in the1940sled to great wereconstructed ofrulesthat thesystems In conclusion, of the IMF and the WTO afterthe 1980s, as in the functioning differences that thedifferent we argue inTable 1 below.In thenext summarized section, systems each of rules had important consequencesfor the specifictype of legitimacy diffuse. of theprinciples is able to claim,and thehomogeneity institution they of rules and coherence Legitimacy market-based economic to hegemonic theIMF and theWTO bothrefer Although in their of ruleslead each to thedifferences fortheir systems legitimacy, principles on moreheavily withtheIMF relying makedifferent claims, legitimating specific Their fairness. and the WTO moreheavilyon procedural technocratic expertise are not equally of rules also mean thatthe two institutions systems respective withtheIMF beingmuchmoreideologically in thenorms consistent they espouse, thantheWTO. coherent allow and rule-applicability of rule-making As we have seen,theIMF's systems who make the rules and betweenmembers fora sharpand durabledistinction
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Table 1 The different of rulescharacterizing theIMF and theWTO systems IMF Rule making Rule applicability Rule enforcement votes Weighted Borrowers Weakgate-keeping function Contractual obligations: - Centralized to monitoring determine compliance - Sanctions administered by IMF WTO Diplomatic negotiations All member states function Strong gate-keeping Judicial proceedings: - Bilateral to determine monitoring compliance - Sanctions administered by other members
memberswho have to follow them. This blatantlyhierarchicaldistinction under- thatis to say, the mines any possibilityforthe IMF to have procedurallegitimacy legitimacyprovided by procedures that members perceive as just (Rawls 1971). - its claim that its policies are Rather,the Fund relies on technocratic legitimacy based on thebest available expertknowledge(Centeno 1994). This makes theappeal to scholarly knowledge a hallmark of IMF policies - the content of IMF is almost always justified with referenceto the ideas of economic conditionality experts. The WTO, in contrast, makes a very different kind of appeal for legitimation. Like the IMF, the GATT/WTO is foundedupon economic ideas- particularly the mutualadvantageof open trade.However, the WTO does not appeal to technocratic The WTO's rules are not imposed from expertiseas the major source of legitimacy. above by technocrats, but are formulated in negotiationsamong the participating - and, recently, countries.Consequently,theprocedures used in the negotiations in - have become the centerof the WTO's claim for the judicial debates legitimacy. The WTO website hence asserts that because "the rules of the WTO systemare agreements resulting from negotiations among member states" and because "decisions taken in the WTO are virtuallyall made by consensus among all members,"then WTO decisions are (by the organization'sown account) "accountable and democratic."4 The IMF and WTO differ not only in how theylegitimate the rules theyimpose, but also in the ideological coherenceof those rules. Both the IMF and the WTO are widely considered to be pillars of the neoliberal world order,yet, in practice,the IMF is the more neoliberalof the two institutions. This difference too grows out of the distinct of and IMF The is controlled systems rule-making rule-applicability. by - and yet its rules do not apply to the inhabitants its wealthiestshareholders of these countries. For example, the United States can encouragethe Fund to rootout "crony about the impacton government-business capitalism"in Thailand withoutworrying relationsat home. This divergencebetween who makes the rules (the shareholders) and who has to adhere to the rules (the borrowers) means that the countries
4 (accessed8/11/2008). http://www.wto.org/english/thewto_e/whatis_e/10mis_e/l 0m01_e.htm
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to imposea relatively the Fund can afford "pure"set of ideological controlling to worry aboutdomestic countries without on other having opposition. principles are expected to comply. all members At the WTO, in contrast, Thus, WTOthe interests of politically affect powerful groupsin policy reforms sponsored - be itinvestment ororganized countries industries, banks, manufacturing developed was a the"neoliberalization" of theGATT/WTO labor.Underthesecircumstances, and contested moreprotracted, processthanwas theparallel political complicated, pitchedpoliticalbattlesboth betweenwealthy process in the IMF, involving in eachcountry interests andamong countries industrialized (Evansetal. competing in powerful are countries ofpolitically-influential theinterests groups 1993).Where theWTO's free-market from WTO rulesdepart Consequently, orthodoxy. affected, andparticularistic neoliberal ofuniversalistic a patchwork rulesconstitute principles whichhave of intellectual the inclusion For example, rights, property exceptions. of the profits to protect intended littleto do with freetrade,was specifically in the U.S. and the EU- not to adhereto industries internationally-competitive of agricultural liberalization economic abstract 2006). Meanwhile, theory (Stiglitz because of opposition has fared subsidies by interest verypoorlyin negotiations countries. in theU.S. and other wealthy groups institutions neoliberalinternational and resisting Critiquing to has threatened of neoliberalism crisis theescalating thepastseveral years, During At the WTO, the crisishas been boththe IMF and the WTO irrelevant. render saw Thenegotiations oftrade oftheDoha round inthestalling manifested negotiations. countries of developing stablecoalition theriseof a relative (Groupof 20), which issues. and other on agriculture richcountries from commitments demands stronger deadline. theagreed before left anddelegations ministerial Several collapsed meetings as developing financial severe faced IMF has(until the Foritspart, difficulties, recently) Both of financing. sources alternative avoidedIMF conditions countries by seeking - notonly criticism andrepeated tosevere beensubject havesimultaneously institutions Atboth the economists. world-famous butalso from World Third from leaders, political of institutional to theexpansion can be traced IMF and theWTO, thesecriticisms inthe1980sand 1990s.Thetwoinstitutions mechanisms andenforcement jurisdictions than didthe dealmore matter a great rules their because andresisted criticized arebeing IMF and GATT,and becausetheserulesdo notseemto have rulesof thepostwar hadpromised. that theeconomic they growth brought different facevery thetwoinstitutions concurrent Yet in spiteof their dilemmas, and degreesof ideological sourcesof legitimacy rootedin distinct challenges, of rule making, in the systems variations reflect which themselves coherence, at thecore of its of theIMF strike Whilecritiques and applicability. enforcement, IMF members theWTO. Andwhereas thisis notthecase with claimto legitimacy, within from to makea change WTO members inprotest, to resist tend try byexiting thesystem. and therefore or no procedural As we have seen,theIMF has little legitimacy, The Fund's technocratic on its claimsto neutral reliesalmostentirely expertise. of economic has beendamaged technocratic performance bythestagnant legitimacy
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IMF countries over the past 20 years,in spite of numerous manydeveloping interventions. The massive 2001 devaluationof the Argentine peso was a as having was widelyperceived event,since Argentina particularly devastating from followed mostoftheIMF's advice.The IMF also drewmajorcriticism experts - not around theworld foritsinvolvement in theAsianFinancial Crisisof 1997-98 for thenature oftheproblem, butalso for a only ostensibly imposing misdiagnosing host of intrusive to the some of which clearlyresponded lendingconditions, demands of specialeconomic in theUnitedStates(Blustein interests 2001; Stiglitz Nobel economist dismissedthe 2002). Prize-winning JosephStiglitzfamously from ofIMF economists, to them students firstas "third-rank competence referring rateuniversities" 2000, p. 57). (Stiglitz in contrast, behindthe WTO critics, the economicprinciples rarely challenge driveto tradeliberalization. the is for its criticized Instead, WTO often hypocrisy, thatis, its tendency to caterto the interests of protectionist interest groupsin the to others while doctrine of "free trade" countries, developed (Stiglitz preaching in thecurrent of trade revolves round 2006). One of themaindisputes negotiations andtheEuropean around theUnited States On theone hand, agricultural protection. Unioncannotagreeon reducing and on their tariffs on agricultural imports high the other their to their farmers and On subsidies lowering generous agribusiness. to the U.S. a to hand, mechanism," designed protect objects "special safeguard of in thedeveloping farmers worldagainst imports temporary surgesin cut-price and rice(Elliott cotton 2008). is not at the heartof the WTO's claim to However, ideologicalconsistency Therefore it is less to the WTO thanthe criticism waged legitimacy. damaging And the IMF. the WTO on its claimtoprocedural fairness. relies Instead, against there been about the WTO's have serious although under-representation complaints of theinterests of poorcountries and Kwa 2003; Wallachet al. 2004), the (Jawara WTO's formally of rulesmakesit moredifficult to criticize thanthe equal system IMF on procedural grounds. Thetwoinstitutions' ofrulesalso provide different for systems very opportunities weaker members to resist them. The economist Hirschman Albert (1970) famously observed that have different thedissatisfacorganizations ways of accommodating tionof members, or clients: favor whereas some institutional citizens, arrangements "exit"(e.g., taking business the of "voice" others favor use your elsewhere), (e.g., In keepingwiththis observation, whereasIMF votingfora new government). incentive for"exit," for"voice." theWTO provides incentive governance provides The IMF's shareholder-dominated rulemaking little meansfor system provides countries to their middle-income interests. Instead,many developing represent - notby quitting "exited" theIMF's rules developing-country governments recently theIMF (sincerulesfor to the are but not loose), by membership relatively applying Fund forresources, instead on own their of relying exchange stockpiles foreign reserves and private 2005). Underthe capitalflows(Buira2005; Bello and Guttal Asiangovernments of 13 oftheir central ChiangMai Initiative, pooledtheresources as an alternative to the IMF.. Kirchner As President Nestor banks, Argentine remarked in 2005, "Thereis lifeafter theIMF and it is a verygood life"(Lerrick to include decisions 2007). Thesenational pareddowntheIMF's listof customers that countries had no choice but to borrow from the Fund, onlyextremely poor
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causing the IMF's lending portfolioto decline from$100 billion in 2003 to $13 billion in 2007 (Lerrick2007). In contrast, WTO membersdo not have a viable "exit" option and have reason to their intereststhroughexercising their "voice," that is to say, attemptto further through workingwithinthe system.One reason forthis is thatthe WTO is a more - a favorable access to international thantheIMF: itgrants markets effective gatekeeper even ifthey thatcannotbe providedby anyother resource Non-members, organization. in the global marketby way of bilateralor regional trade findways to participate to discriminatory measures. are stillvulnerable agreements, to the IMF, the WTO's internal A second incentivefor"voice" is that,in contrast governance system allows members to potentially influence the making and rounds of tradenegotiationsand the disputeresolution applicationof rules through the memberswith the least mechanism.This applies even to developing countries, influencein the overall shape of the organization.As we have seen, the need to arrive to consensus provides developing countries some bargaining leverage in diplomatic negotiations. This has become particularlypronounced at the Doha Round, with middle-incomecountries,including Brazil, South Africa, India and This may theireconomic interests. China, more explicitlyinsistingon protecting enhance the perceptionthatdeveloping countriesdo not need to demand a drastic of the WTO, but ratheronly a reversalof the substantiveagreements.The reform the Doha Round negotiations to disrupt abilityof a coalitionof developingcountries a positive sign for the WTO ratherthan a may be, somewhat counter-intuitively, and negativeone, as it suggeststhatthe WTO may have the capacityto incorporate in the economic positions and political interestsof respond to transformations for the IMF to address its critics,it is obvious to all member states. In contrast, renovationis required,which would be institutional observersthat a fundamental to accept. thecurrent from forthe statesbenefiting muchmoredifficult arrangements Recognizing the severity of its legitimacy problems, the Fund has recently of structural One is the elimination reforms. launched several internal "performance criteria" (the formal conditions that, when violated, lead automatically to the the of a new lending facility, suspension of a loan). Another is the introduction thatare line of creditto countries a condition-free Flexible CreditLine, which offers already pursuingIMF-approved policies. Yet using policies as a preconditionfor loan eligibilityis merely anothervehicle for conditionally (similar to the "prior thisvehicle,or either conditionscan stillbe imposed through action"), and structural benchmarks."None of the proposed throughthe Fund's less formal "structural moreover,address the Fund's austere macroeconomic conditionsthat are reforms, and thathave remained over economic growth, low inflation famousforprioritizing a centralcomponentof recentloans (Muchhala 2009). such internal organizational reforms cannot address the Most importantly, which gives decisionperceived unfairnessof the IMF's governance structure, making power to the wealthy countriesthat are not subjected to the IMF's rules. that controlthe IMF could bring such a change Only the powerfulgovernments in the to do so. A long-awaitedreform about, and thus fartheyhave been reluctant Fund's governingstructure implementedin 2006 leftthe U.S. with its traditional reduced the overall share veto over major organizationalchanges and only slightly countries(Weisbrotet al. 2009, pp. 20-1). As controlledby wealthyindustrialized } Springer
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thisarticle remain deadlocked over members goes to press,the IMF's powerful whereas theUnited States wants topreserve itsownvoting share reform; governance butincrease thesharegoingto emerging market countries, governments European have thusfarrefused to agreeto anyreform thatcomesat their expense(Duncan 2009). Conclusion Overthepast severaldecades,international institutions have playedan activeand visiblerolein constructing a neoliberal The IMF, theGATT,and globaleconomy. other institutions ofthe international order the ofthe1970s- but survived crisis postwar willthey survive thecurrent one? We have shown that of distinct as a consequence for and the IMF and WTO offer distinct rules, systems making, applying, enforcing levelsofpolicy coherence andmakedifferent to legitimation. As a result, claims they also encounter different kindsof criticism and different of political resistance. types There aretwomainconclusions that we draw from this study. this that the current U.S.-led of whether First, studysuggests (independently new world order or is with a survives, transforms, replaced hegemonic hegemony) the WTO is morelikelythanthe IMF to play an ongoingrole in international economic governance. As a seasoned, technocratic that has an organization IMF a contrast to intellectual of its stark for each the explanation policies, poses theraucous And and inconsistent rules of the WTO. negotiations yet, paradoxically, the WTO appearsto be the moreresilient This is partly of the two institutions. becauseit is a better and moreeffective enforcer thantheIMF, and its gatekeeper rules are hence more difficult to evade. Yet, it is also its formally equal of interests thathelps keep the WTO in businessby providing a representation incentive to within the above the This does not WTO positive stay system. place after have longobserved thatsystems of formally criticism; all, sociologists equal are used the and for their ownbenefit representation easily (see by wealthy powerful Weber1978,pp. 812-13). Yet it allows theWTO an opportunity to successfully deflect itscritics that theIMF is lacking. the evolution of theIMF and WTO provides clues as to the Second, interesting future of that the current economic possible shape global governance assuming wave ofglobalization does notcollapseunder itsownweight, as didthewaveofthe that manifestations early20thcentury (James2001). Of the variousinstitutional combinecoercionand consent, our comparison that flexible, suggests negotiable of rulesaremorelikely to endure than ones; and formally systems rigid equal rules are more resilient than formally through managing unequal ones. Governance resource is to turn common for intoan increasingly mechanism dependence likely theimposition of globaleconomic a form of rules.Resource is management likely it a that at least because is latent form of coercion one seems, globalgovernance on thesurface, to be compatible withthemodern norm of formal equality. theresources of third and usingthird to monitor and Managing parties, parties enforce tactic of all. as the WTO to be the most effective does,appears compliance, Much of global ruleenforcement the occurs "under radar," through gate-keeping than institutions thatare farless visible(and hencefarless accountable) through ) Springer
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either the IMF or the WTO, such as international bond rating agenciesor the International StandardsBoard (Mosley 2002; Carin et al. 2006; Accounting Braithwaite and Drahos 2000). Yet gate-keeping can also be a tool for social movements: forexample, have started to "certify" non-governmental organizations whether multinational firms adhereto fairlabor and fairtradestandards, thus thepowerofthird to punish firms that do notadhere parties (consumers) harnessing et al. 2001). It is evenpossiblethat to their standards current trends could (Gereffi for a more substantively lay the foundation equal systemof global economic governance.
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2009 28 June online: Published Science+ BusinessMedia B.V 2009 Springer

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of rulesand their on international institutions Fig. 1 Systems impact & Springer

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