Economic Global Governance (copy)

2.2.1 International Monetary Fund (IMF) and the World Bank. • Role and significance of these institutions, including their strengths and weaknesses. 2.2.2 The World Trade Organisation (WTO) and G7/G8 and G20. • Role and significance of these institutions, including their strengths and weaknesses. 2.2.3 Significance of how global economic governance deals with the issue of poverty, including: • The North-South divide and other measurements to include world-systems theory, dependency, orthodox and alternative measurements of poverty. • Classical economic development theory, structural theory, neo-classical development theory.

define G7

informal bloc of industrialised democracies which meet annually to discuss issues such as global economic governance, international security, energy policy

collective GDP = 58% of global economy (2018)

How is the G7 set up?

* presidency rotates annually among member states, and are responsible for setting agenda and arranging logistics
* has no budget or secretariat (unlike UN and IMF) so action that costs money is paid for by the states themselves (or not)
* decisions are not binding and rely on individual will of member states
* no objectives allowing for enormous flexibility
* basically a discussion forum

Why was Russia expelled from G8?

due to the ‘illegal’ 2014 annexation of Crimea

Criticisms of G7

* members are outdated (China is 2nd emerging economy but not included)
* made of countries who merely agree with each other (expulsion of Russia in 2014 confirms this)
* scope to achieve major breakthrough is limited
* its flexibility and informal approach makes it difficult to hold members to account for commitments made at the summits

Impact of G7

* impact on state sovereignty is negligible (extent to which decisions are delivered/enforceable are weak)
* **2007: Gleneagles Summit** saw G8 agreeing to major debt cancellation to heavily indebted poor countries

G7 Case Study - Gleanagles Summit July 2005

SUCCESSES of the summit

Hosted by Tony Blair

* US pledge $50 billion in aid to developing countries by 2010 , $25 billion was to go to Africa
* ministerial level agreement to major debt cancellation to heavily indebted poor countries

UK breaking historical practices, allowed non govt organisations to play a key role in deliberations → due to public pressure of ‘Make Poverty History’ movement

\
\

G7 Case Study - Gleanagles Summit July 2005

FAILURES of the summit

* No agreement on global warming was reached due to opposition from the US


* The deal was not a full cancellation of all debts but only a cancellation of the debts for 40 potential countries → this was even after completing the HIPC iniative ‘Highly Indebted Poor Country’ which means countries were forced to change their economic policies at the behest of the IMF and World Bank

SIGNIFICANCE?

* This guaranteed more of the economic conditionalities highlighted by the ‘Make Poverty History Campaign’
* For example, Tanzania was forced to privatise water to a British Company (Bi Water) , which worsened services

define G20

an informal forum that promotes open and constructive discussion between industrial and emerging market countries on key issues related to global economic stability

created in 1999 as a means of expanding G7/8 into wider group of emerging economic powers

Who are in the G7 and G20?

65% of world population

84% of world economy

79% of world trade and world carbon emissions

When was G20 most effective?

**2008/9 financial crisis**

unprecedented cooperation between the world’s largest economies provided liquidity that limited the contagion of banking crisis. kept markets open and prevented countries from resorting to protectionism, and provided stimulus that cushioned drop in growth

* this was done by the **members contributing $500b to a programme of global reflation**

Key features of G20

* represents both established and emerging economies which account for almost 2/3 of world’s population
* allows key IGO’s (EU, IMF, WB, WTO etc) to attend
* meetings are annual, with the presidency state of that year choosing what attendees to invite and sets the agenda

Effectiveness of G20

* a balance of traditional economic powers and newly emerged powers making it neither too exclusive or too comprehensive
* allows a forum of dispute and problem solving as not all countries agree (unlike G7)
* inclusions and partnership with major Bretton Woods IGO’s allows powerful states to influence these institutions
* ensure wealthy states and IGO’s work together, this has reduced the ability of banks to fund terrorists

Staged violent protests in Apr 2009 at the London Summit - Criticism of the G20

* has become focal point for anti-capitalists, who (demanded action from heavily industrialised states on climate change and regulation of TNCs)

2016 G20 Hangzhou Summit communique - Criticism of the G20

2016 G20 Hangzhou Summit communique included

* support for refugees
* reducing protectionism
* reducing tax evasion by working with OECD to identify tax havens

summits conclude with a ‘communique’ agreed by each state, this has been criticised for basically being the best all states could agree on and no state can be held accountable for these

What was the Bretton Woods Conference?

held in 1944

agreement between 44 nation states that economic pressures played part in rise of fascism in Germany, and sought to discuss how the world’s financial systems should be managed in peacetime

* **created IMF, World Bank and WTO**

Aims of Bretton Woods Conference

* create agreed system of rules for international economic trade regulations
* stabilise world currencies and reduce wide fluctuations in value of currencies
* prevent repeat of 1930s Great Depression
* bolster capitalism against emerging rise of communism

define World Trade Organisation

exists as a result of failure to establish ITO

initially GATT, WTO is 3rd BW institution created in 1947 with 23 countries with the basic principle to gradually negotiate reduction of tariff barriers and other forms of protectionism

**became WTO in 1995 and now 164 states (97% of world trade) and now works on a one member one vote basis and helps negotiate disputes between countries and arbitrate**

What is the WTO’s functions?

* reduce barriers in trade on both goods and services, thus enabling spread of global capitalism to reduce poverty
* checks states are following trade agreements
* produces research on global trade and economic policy
* helps resolve trade disputes between states

What is the most important decision making body of the WTO?

**the Ministerial Conference, which meets every 2 years**

decisions are made by unanimous consensus

WTO’s 6 principles

1. non discrimination
2. more open (commitment to more open and free trade)
3. predictable and transparent (enables stability and job creation)
4. more competitive
5. more benefits for less developed nations
6. protection of the environment

Most successful WTO negotiation round

Uruguay round 1986-1994 which reduced agricultural subsidies

no change since then!

Success of WTO

* helped transform international relations
* binding rules for global trade in goods and services have facilitated dramatic growth in cross-border business activity
* since 1995, dollar value of world trade has nearly 4x while real volume of world trade expanded 2.7x

Failures of WTO

* Fairtrade Foundation revealed $47bn in subsidies paid to rich country producers has created barriers for 15m cotton farmers across W Africa trying to trade their way out of poverty
* 5m of world’s poorest farming families have been forced out of business and into deeper poverty
* enables wealthier states/Global North to maintain tariffs and rules which provide them with an advantage at the expense of developing world
* argued WTO implements a system of trade which further enables explanation of Global South whilst benefitting the North

Why did the 2001 Doha round fail?

* Political will was low and in no mood to invite further opposition from powerful farming lobbies
* Was not in interest of major countries (US and EU bloc) to remove agricultural subsidies as these protect their economies (realism)

Criticisms of WTO

* political power resides with Western powers and they tend to gain the most from deals
* decision making is biased towards these countries with large representation in Geneva
* only wealthy countries have the resources and legal expertise to dispute legal
* worker’s rights and environmental protection is disregarded
* unable to make decisions quickly due to large membership
* Andrew Haywood - ‘WTO is a rich man’s club’

define International Monetary Fund

provides economic stability by giving financial support to states that are suffering from a debt crisis

monitors economic outlook of both the world economy and the member countries, incl forecasting and predicting

Functions of IMF

* **Economic surveillance** (highlights possible risks to stability and advises needed policy adjustments)
* **Lending** (provides loans)
* **Capacity development** (helping boost growth and jobs)

Types of demands which come with IMF loans

* cutting public spending
* tax reform
* free trade
* privatisation
* deregulation of markets and capital controls

Structure of IMF

* 190 member states
* led by managing director who is always European
* deputy head and first deputy managing director are always American
* US also has biggest share of voting rights (in line with size of economy)

What is IMF’s main source of income?

**member payments**, some have criticised this undemocratic as voting power is weighted according to how much states contribute financially

What are Structural Adjustment Programmes?

conditions the IMF gives when they make a loan to a member country, to ensure they go through economic reforms to overcome problems that led them to request help in the first place

Criticisms of SAPs

* development countries see increased prosperity but also increase inequality and child poverty suggesting programmes disproportionately benefit the rich
* reform of formal sector of economy has little impact on poorest working in informal sector
* opening markets to foreign investors could expose fragile economies to effects of foreign economic crises

Greek Debt Crisis

* Greece accumulated large debts in international financial spending due to high public spending and low GDP, therefore making them a major recipient of IMF loans
* ECB, European Commission and IMF decided impact of crisis could spread and rescue package was needed
* 2010: €110b to Greece was approved
* demanded to implement austerity measures in return
* 2014: anti austerity party Syriza won snap election
* represented clash between political and economic IGOs and state sovereignty, 61% of Greek people said they did not support the bailout package
* 2015: Greece failed to make payment to IMF (1st developed country to do so)

IMF is a force for good in global world economy

* gives loans to state and helps reduce likelihood of failing into economic recession
* helps prevent economic difficulties from spreading to other states
* encourage states to reform their economies to an economic model that has delivered economic growth to other states
* provides independent monitor of state economies, helping them identify threats and opportunities

IMF is NOT a force for good in the global world economy

* IMF forces states to comply with SAPs in a way which interferes with their sovereignty, it relentlessly promotes a neoliberal, Western dominated economic model
* SAPs do not benefit the poorest, but boost cooperate profits and serve interests of developed states
* Failed to predict and prevent global financial crisis in 2008 by failing to challenge reckless lending and inadequate regulation of global financial institutions
* Was unable to prevent spread of Greek debt crisis

define World Bank

founded at the Bretton Woods Conference in 1994 with a purpose to aid long term economic development and reduce poverty in developing countries through making technical and financial support available to countries

World Bank’s goals by 2030

* end extreme poverty by decreasing % of people living on less than $1.90 a day to no more than 3%
* promote shared prosperity by fostering income growth of bottom 40% in every country

The World Bank in Afghanistan

Afghanistan

* 2002, the WB has invested over $3.3b for development and reconstruction

The World Bank in Eastern and Southern Africa

* $140m invested in Higher education centres of Excellence to improve training and research in key sectors

How does the World Bank work?

* 189 member states


* decisions are put to a member vote
* like IMF, voting power is weighted according to amount states contribute
* USA carries 16%, whilst no other state has more than 5%

Strengths of World Bank

* programmes have contributed to success of MDG to reduce world poverty which focus on direct grants to poorer states (rather than loans which loans which prevents creation of additional debt pressures)

Criticisms of World Bank

* contributions are dwarfed by private investors, which amounted to as much as $900b for China and India in 2011, whilst WB reached only $8b
* imbalance in voting powers is outdated in increasingly globalised world economy where rising powers incl Brazil, India and China have less than 1/3 of USA’s voting powers
* 2007: WB loans $68.5m to Kenya national rainforest project, leading to forceful removal of indigenous peoples