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    15 views12 pages

    The Promise of Global Institutions CH1

    Uploaded by

    amazinguyy
    ch1

    Copyright:

    © All Rights Reserved
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    of 12
    slosep Stabe etl a, Dl (2c02) CHAPTER 1 THE PRoMISE OF GLOBAL INSTITUTIONS wold economic orler—ae under atack everywhere, Formerty uneventl meetings af obzcue technocrats dzcasing mandine subjeess such a concanional loa and trade quotes hive now become the scene of raging ret bates and hoge demonstrations, “The protests a the Seale meeting ofthe Worl Tade Organisation in 1999 were a shock, Since then, the movement has groensxonger tn the Fry as spread Virully every major meeting of the Inersa- tional Monetary Fund, the Wosld Bank, andthe Wood Tade Organi- ration is now the sene of cont and eurmoll. The death of = protest ia Genos in 2001 was just dhe beginning of what may be ‘any more cstle ia the war azine globalization, ‘Riot and proses agains the polices of nd actions by ina ons of globalisation ae hardly new, For decades, people in the developing world have rioted when the auecity progans impored fon their counties proved to be coo hats, bu their prot were bagel unheard in the Wes What is new i he wave of protests in the developed counries, ase tobe that sabjecs ruc a struct adjust loans (the progeams that were deviged t help counties adj eo and wertce ‘tiss) and banana quotas (the limits that some Eoropean. coun [2s ursaucnars—rux Gees symbols ofthe impose on the importing of bananas fom counties othe than thee fovmer colons) wete of interest only + few: Now sixteen-year- ‘dks for the subuibs have arong opinions on such esoteric tuts GATT (the General Agreement on Tarif and Trade) and [NAFTA (ine North American Foe Trade Are, the agreement signed fn 1992 between Mexico, United Stats, and Canada that allows for the fete movement of goods, services, and invement—But not people—among thote counties), Thee protests have provoked an fevocnous amount of soul-searching fom thoee in powe. Even con serntiepoltciansaoch as France’ president, Jacques Chia, have fpesed concern tha globalaton i not making ie beer for thoe mos jn ned of i promised benefis! tis clear to ales, eeryone that something ha gone horebly wrong, Also oreright, fobulzation has become the mos pressing ie of our me, some thing debated from boardrooms t> op-ed pages and in school all coverthe weal. ‘Wav fas ctomatization—a force that hat brought 10 much rod —become so contovera? Opening up t iterations rade fis helped many counties giow fr more quickly than they would oterwise hive done, International wade helps economic develop- Inent when a countrys expors deve is economic growth. Expot= Ted gromth ws the centerpiece ofthe industrial policy hat enied such of Asia and lef millions of people there i beer off Beense of globlation many people in the word now live longer than bene ad thee andi of living is far better. People in the West ‘may aegud low-paying jobs at Nike at exploitation, bet for many people in the developing wold, woking ina fictory i 2 fr beter pion than staying down onthe farm and gowing rice Globalization has redaced the rere of wolationfltin much ofthe eeloping world and has given many people in the developing countries access to knowledge well Beyond the reach of even the ‘wedthies in any country 4 century ago. The aniglotaiztion proests dhemselves ace a teu ofthis connectednes. Links betwen ftv in fret parte ofthe worl, patculay chose links forged through Internet comminiiton, broaght about the presure that resulted inthe international landmines tresty—depite the oppsi- Ths Psowus oF Gronas ineitorions ‘ tion of many powesl goverment Signed by 121 counties as of 1997 itredaces the likalhood that children another innocent vie~ tims wil be maimed by mines, Simul, well-orchesrated public pres se forced the international community to forgive the debe of some ‘ofthe poorest countries. Even when there te negative sides to glob lization, thee ae ofen benelit. Opening up the Jamaican mak rarkes to US. import in 1922 may have har ocl dit firmer bot it ako meant poor chldeencatld get milk more cheaply, New for- ign firms may hureproteced state-owned enterpries but they can slko lead co the introduction of new vechnlogis, secs to new mar- ets, andthe creation of ew indies, Foreign aid, another aspect ofthe labled worl, for alts fats sal has broughe benef to milion, on in ways dat have alms gone unnoticed: guerilla i che Pilppnes were provided jobs by World Bank-financed projet as they hid dow thei arsirrigation projects have more than doubled che incomes of frees icky ‘enough to get water; education projects have brought literacy to the run ates in afew counties AIDS proecs have helped contin the spread ofthis deadly dase Those who vilify globalization too ofien ovedook is benefits. But the proponents of globalization have been, if anything, even more ‘unbulnced:To them, globalization (which eypiclly i aicited with sccepigtcuraphant capil, American syle) i progres devel- ‘oping countries must accape i if they are to glow and to fight over effectively. But to many in the developing weil, globalizs- tior has not broughe the promised economic benefits A growing divide becween the hives and che have-nots has lft increasing number in he Thind World indie poverty ving on less than a dala a day. Depite repeated promises of poverty reduction made over che ot decade ofthe ewenteth century, the actual ber of people living in povery has actualy increased by almest 100 milion? This occured st che same time tht total world income increned by an average of 25 percent anally In Aftica, the high aspirations following colonial independence fave been lagely unfilled. Instead, the continent planges deeper ito misery, as incomes fll nd sandards of ving decline: The hat won improvements in if expectancy gained inthe past few decades hae begun to reverse While dhe scourge of AIDS ia he center of| shes dein, poverty i alo a killer ven countries that have aban- ded Afican soins, managed to install reasonably honest gov- treats, balanced thee budgets, and kept fation down find that they simply cannot atract private investors, Without this investment, they cannot have susainable growth if globalization as not eceeded in reducing poverty, nether has iscceeded in ensuring ability Crise in Asa and in Latin America have threatened the economies and the subiity of all developing counties There are fat of final contagion spreading aronnd the world, dat the collapu of one emerging mazket currency wil mean that others ills well Fora while, in 1997 and 1998, che Asan crisis appeared o por threst 1 the entre world economy: (Globalization andthe intoduction of a market economy his not reduced the promised revuke in Rus snd most of the otbee fconomist making the tamiion Som communism to the maket, ‘These counites were told bythe West tar the new economic tem would bring than wnprectdented prosperity. Instead brought toprecedented poner ia many repel, for mos of the people the Imatket economy proved even worse chan their Communist leaders tnd predicted The contrat between Rania’ anston ss engineered bythe international economic itations and that of Chins, designed by ite coulé not be greater; While fn 1990 Chioa’ ross domestic product (GDP) was 60 percent tha of Raia by the end ofthe decade {he numbers had been revered, While Rusia sw an unprecedented increas in poetry, Chia saw an unprecedented decrease. “The crits of globalization accuse Western countries of hypoctny, and the crits ate right. The Wescern countries have pushed poor Countries to eliminate wade bari, but kept up thee own bari, preventing developing countries from exporting thee agriulural ppodiucs and 30 depriving them of desperately needed export tncome- The United States wat, of cours one ofthe prime culprits, snc his was an se about which 1 fk intersel When Iwas cha man ofthe Council of Beonomic Advises, | fought hard agains his ype, at had my predecewor tthe Council fons both parts. It not only hut the developing countries; it ako cost Americans bit lion of dolla, both a consumer, inthe higher prices dhey paid and ‘Dus Prone oF Groza. ri 2 taxpayers, to finance the huge arial subsidies ‘The struggles swell too often, untuccesfil. Special commeril and Snail inneessprevled—and whea I moved overt he World Bank, [ssw the consequences to the developing counties all oo cles. Bat even when not guy of bypociny the West has dive che sloklzaionagends ensuring that gamer a caproporionae she ‘ofthe beneis, 2 the expente ofthe developing worl, wae not just that the more advanced indorcal countries declined to open up thie matkets tothe goods ofthe developing coustiea—for instance, -eeping thie quotas on 2 muittde of goods fom textes sugat— ‘while ining thae chore countses open up dir markets so the ood of the wealthier counties it was not just thit the more advanced industrial counties contised to subsidies agricul, making it dificult for the developing counties to compet, while insning that che developing counties eliminate their wbiies om indasial goods. Looking atthe "terms of tade"™—the pices which developed and lew developed counties get for the product they roduce—afir the lst trade aprement in 1995 (the eight) the ner cefect was to lower the prices rome of the poorest counties in the ‘woud received rebaive to what they puid for their imposts* The resus tha some ofthe poorest countries inthe wodd were se ally made worse of ‘Western banks benefited fom the loosening of pital market, controls in Latin America and Asa but toe repion steed when Inflows of speculative hot money (Soney sat comes into and out of 2 country, offen overnight offen isle more than betting on whether ‘currency it gong to appreciate or depreciate) tht ad posted into countries suddenly revened. The sbrape outow of money le Deind copied cuzrencies and weakened banking stems. The ‘Uruguay Round abo sengthened inelectual propety righ ‘his eth neem ref ngetinin ced the UnguyRad ‘cae the egos began 986 oP dal Ea, Uru The mtd we coca in Mach on Decne 1,198 when 117 conten jon Sn by Pret into 09 Dever 8, 1994 The Wot Take Opa ‘ar et onal et muy 11995, ne 10 sansa igre ob Jar One pon othe aetna comeing he GATT i i WT [American and other Wester drag companies could now sop drug companies in fnda and Bra fom "sealing thie intellectual prop tty But these drag companies inthe developing word were making these Hife-sving drags aaabe to tei eizens ata action of the price a which the drugs were sold bythe Western drug companies ‘There were ehus two sider tothe decors made nthe Uruguay Round Profs ofthe Western drug companies would go up. Advo~ cates sid this would provide them more incentive to innovate; but the increased profits im ale in the developing woeld were sal, Since fw could afford the dry, and hence the incentive effet, at best might be limited. The other side was that thousands were fc threly condemned to death, becse goverment and individ in ‘veloping cousuies could no longer pay the high prices demanded. Tethe cate of AIDS, che iterations oatage was great chat drug companies had to back down, eventually agreing to lower cir rcs to sell the deugs corn ate 201. But the nderiying prob Jemrthe fact thatthe intlecrl property regime exahed ver the Uropusy Round wis not balanced, hat ic overwhelmingly ‘decd the interests and perspectives ofthe producers, a opposed to the wer, whether in developed or developing countrer—rerain, ‘Not only in ede liberalization but ia every other aspect of gobalation even seemingly well-intentioned effors hive often Incite When projects, whether agicultore or infasructe ee- commended bythe West, designed wi the advice of Western avis fa and financed by the World Bank or others have filed, unless there is ome form of debt forgiveness, the poor people in the devel ping wold ail mt repay the loans in too many instance, the benefits of globalization hive been Jes than its advocates claim, the prize paid has been greater, a the environment has been exroyed, politcal proceses have been co rupted, and asthe pid pace of change has not allowed counties time for eultrl adaptation, The eres chat have brought in eit sake masive unemployment have, intr, been fllowed by longer~ term problems of socal disoltion fom wan violence jn Latin [America to ehnic conflicts in other pats of the world, such as Indonesia ‘These problems are hardly nes—bur the increasingly vehement “Tae Prone or Grosas tnstirurions ‘ worldwide reaction agains che polices chat dsive globalization is a significant change, For decades, the cries of the poor in Aiea and in Seveloping coustses in other parte of the world have been largely ‘unheard in de West Tove wh labored inthe developing counties, new something wis wiong when they sw financier ing more commonglice snd the umber: of poor increasing. Bue they had no ay to change che ules ot influence the interasonal financial instotons tht wrote them. Those who valued democratic procenes sx how “conditional” —the conditions chat interna- tonal leaders imposed in return for their asitunce—undermined ‘atonal sovereignty. But until de protestors came along there was Title hope for change and no ove: fr complaint Ser ofthe pi tenors went fo excess; sme of the potesors were arguing for higher protectionist buries agaist the developing counties, which ‘would have made thir plight even wore. But despite these prob len, iis the tide unionis, aden, ervionmentaite—owinary ciisene—matching inthe ret of Prague, Sate, Wasington, and Genoa who have put the need for reform on the agenda of the developed word Protestors ee globalization ina very dierent light than the tea sry secretary ofthe United States, o the finance and rade ministers fof most ofthe advanced industrial counties The dierence in views ae 40 get that one wonders ae the protestors and the policy mak ces taling boot the same phenomnent? Ate they looking at che sme (43? Are the visions of thot in power so clouded by special and pat- ‘nla interest? "What is chi phenomenon of elobalization that hasbeen subject, at the same tine, to suc vilficstion and such peie? Fundamentally it isthe closer integration ofthe counties and peoples of the wos ‘which as been bought abou by the enormous reduction of eats of ‘eansportation and comminication, andthe breaking down of arf al barter to the flow of good, services, capi, knowledge, and (to a lester extent) people acow border. Globalization has been sccompaied by the eestion of new inttations that have join ‘vith exiting ones to work acom borders In the azna of iter tional cil soci, new groups, lke che Jubilee movement pushing for debe reduction for the poorest countries, have joined long- » Guonauzation ayn Irs Disconrenrs estahished ongiizations like the International Red Cros. Gobalzs tion is powerilly driven by imernatioal corporations, which ‘move not only epi std goode azo borders bu ao technology. Globalization has avo lef renewed attention to long-establitied ‘nceeationa nteevenmevtlintatons the United Nations, which attempts fo maintain peice; the Internation! Labor Organization {HO}, oviginally erste in 1919, which promocesits agenda around the world under is logan “decent work"; and the Wosld Health (Organization (WHO), which has been epecially concerned with improving health conditions in the developing would ‘Many, pethaps most of these pects of globazaion have been welcomed everywhere, No one wants to see their chill die, when Enowledge and medicines ae avaiable somewhere el in the world Tei the more narrowly defined como specs of globalization that Inve been the subject of contovesy, and the international istita~ tions eat ave writen the ele, which mandate or posh things ike Iiberization of capital martes (the ciminsion ofthe roles and reg~ uibtions in many developing countries that ate designed ro tbilize the flows of woe money into and out of the county) “Tp understand what went vz0ng, ih imporaat to look athe thvce min institutions that govern globalization: the IME, the Wood Bank, and the WTO, There ae, in adtion, 2 host of other insita~ ‘ions that playa roe in the international economic systema mint ber of regional bak, muller and younger ster othe World Bank, anu lange number of UN organizations, suchas the UN Develop tment Program of the UN Conférence on Tae and Development (UNCTAD) These organizations offen have views that are markedly tert fom the IMF and the Word Bank-The ILO. for example, ‘worries thatthe IME pays wo litle attention to worker righ, wile the Asan Development Bank argues for “competitive phir fam! whereby developing counties will be provided with akernative views of development emtegie, including the “Asin model"—in Which governments, while relying on makes, bave taken an active tole in creating, shaping, and guiding matkes, including promoting new technologies andi hich ims take considerable responsitlity forthe social welfare of tei employses—which the Asian Develop “Tun Peouase of Gionat heresrunIONe " model iment Bank sets a diinely diferent fom the Ame prshed by the Wishington-bused insitutions ‘In this book, I focus oly on the IMF and che World Bank, largely beaut they have been a the center of the major economic Inne of the la two decades, incding the financial crises and ‘tanstion ofthe forsee Common countries to maket economies "The IMF and the World Bank both originated in Would War Ifa 2 result of the UN Monetary and Financia! Confrence at Breton ‘Woot, New Hampi in July 1946, part of concerted effort 2 finance the rebuilding of Euiope ater the devastation of Would Wac I and to sive the world fom future economic depresions. The proper mame of the World Bank—the laerasional Bak for Recon- Seretion and Development—refects itt origin ison; the last pat, “Development” wat added slo a an afterthought Ar the time, most of the counties in the developing wosld were ssl colonies, and what meager economic development efor could or fwould be undertaken were considered the responsibility of their European master "The more difcl ak of ensuring global economic sabilty was signed to the IME Those who coavened at Breton Woods had the ‘lob depresion of the 1930s very mich on their minds. Almost thuce quatters of century ago, eptlio fred 8 mos severe crisis to dae The Gren Deprestion eavloped the whole warld and led to unprecedented incener in unemployment. Ar the worst point 2 ‘garter of America? workforce wat unemployed: The British econo- inst John Maynatd Keyues, who would later be a key pattcipane at Breton Woods, pu forvad imple explanation, anda corespond ingly simple set of prteripions ck of saicient aggregate demand explained economic downturn; government policies could help ssilate aggregate demand. In cass where monetary policy is ine fective, goreenments could zly on fiscal policies, ether by increasing expenditures orcutng axes. While the models undelying Keynes’ alysis ave subeequendly been eritiized and refined, bringing a Geeper undettanding of why market forces do not work quickly to adjst the econonty to fll employment, the bai lens remain vali ® Guonauizavion ano Urs Dscowrsnrs ‘The Ineernitional Monetary Fund was charged with preventing another global depression. Fe would do this by puting internavonal pressore on counfres hat were not dong cher fe sate to main tlobal azaregite demand, by allowing their own economies to go Jno alam. When necesary i¢ would alo provide liquidity in the form of leas to dhe counties facing an economie downturn and ‘unable wo stimulate aggregate demand with their own resources. Ins original conception, then, the IME was based on a recogni- sion that markets ofen didnot wesk well—that chy cou resale in ase unemployment and might fil to make needed finds avai thle fo counries to help them rextor thei economies The IME wt founded on the belief that Uhre was a need for collet ation a the lll eel for economic sabi, uta the United Nations had been founded on the bli that there was a need for collective action at ‘he global level for political sibility-The IMF i a pubic insiuion, ‘rablshed with money provided by txpayers around the wodld. This is important co eemember because i doer not zeport dicctly ther the citizens who finance i or thve whove lives ie aes. Rather report to che minisvies of finance and the cena banks of| the governments of the wodd, They asert their control through = complicated voting arrangement based largely on the economic ‘power ofthe countries atthe end of World Wer I There have been some minor adjatmens since, but the major developed countries run the show with only one country. the United Sexes having effec tive veto, (In thir vente, i sina to che UN, where a historical anachroniim determines who holds che veto—the victorious powers ‘of Wodid Wir Iba ale there che veto power i shared among five counsies) ‘Oter the yeas since its inception the IMF has changed marked. Founded on che belief chat mackts ofien worked badly, it now champion market supremacy with ideological ferws, Founded on the bli that chere i a ee fr international pres on counties, to have more expstsionary economic polces—such a increasing expenditures, reducing tas, oF lowering interes rates to stimulate the economsy—today the IMF typically provides funds only if conn tees engage in policies Hike cuting defi, ean taxes, oF rising ‘Tas Puowass of Grosas Insrrevions » inert rites that lead to 4 contraction of the economy. Keynes ‘would be roling over in his grave were he to se what has happened tobi child, ‘The mort dramatic change in thee inwions occursed in the 1980s, the er when Ronald Reagan and Marguee Thatcher preached fice market ideology inthe United States andthe United ‘Kingdom. The IMF and the World Bank became the new misionary “nsitutions,erough which thee idess were pushed on the relecant poor counties that ofen badly needed theit lane and gant. The rinses of finance in poor countries were willing to become coo rneceisiry to obtain the find, chough the vse majority of government ofc, and, more to the point, people in these coun= {ees often remzined skepcal tn che eat 1980s, purge cecurred inside che Wood Bank, in its esearch department, which guided the Bank’ thinking and ection Hols Chenery one of America’ most

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