Global governance: economic

Question 1

Can you explain why the IMF was created and what its role is now?

Answer 1

The IMF was established in 1945 following the Bretton Woods.

It functions include:

• Surveillance- monitoring economic performance.
• Encouraging free trade, free markets and also ensure global financial security.

–> By providing short term loans to countries facing a balance of payment crisis.

Question 2

What are the weaknesses of the IMF?

Answer 2

• Some claim that the IMF undermines economic sovereignty. This is because some desperate states have no other option other than the IMF so they must accept the conditions of their loans.
• Some claim the IMF is an agent of US power. This is because the US has a 16.7% of the vote and the IMF requires 85% to change its constitution, meaning the US can have an effective veto.
• Some claim the IMF puts profits over people because some SAPs include policies that include things such as cuts in welfare spending, putting profits over the benefit of people.

Question 3

Strengths of the IMF

Answer 3

• The IMF has been successful in preventing “financial contagion” because they do try to contain the financial crisis by providing stability at times of economic crisis.
• The IMF has been successful in improving the level of development in particular states, including, India, Chad (provided 1.1 billion in debt relief) and South Korea (provided 5,5 billion aid package)

Question 4

Can you explain why the World Bank was created and what is its role now?

Answer 4

The World Bank was established in 1945 after the Bretton Woods conference. It provides long term loans and support, training at advice to developing countries.

Question 5

Weaknesses of the World Bank

Answer 5

• Its contributions are tiny compared to private investors, so it can only focus on the poorest, most conflict-ridden states which are unattractive to investors.
• Imbalance in voting power is increasingly globalised (the USA carries 16% of the voting power, no other state has more than 5%)
• The World Bank is too slow at processing loans, and it is loosing many potential clients.

Question 6

Can you explain why the WTO was created an what is its role now?

Answer 6

The WTO was established in 1995, it is the successor to the General Agreement on trade and tariffs.

It is designed to increase world trade by encouraging member states to reduce tariffs and settle trade disputes.

Question 7

What are the similarities between the World Bank and the IMF?

Answer 7

States need to be a member of the IMF before joining the World Bank.

Both are part of the UN family.

Both attach conditions to loans.

Both support Neo-liberalism.

Question 8

Strengths of the WTO?

Answer 8

By discouraging tariffs the WTO had expanded global trade, helping reduce poverty.

Despite the 2008 crash, the WTO did not resort to protectionism which would have extended the recession.

According to democratic peace theorists by encouraging trade the WTO reduces the risk of conflict.

Question 9

Weaknesses of the WTO?

Answer 9

Failure of the Doha round to reach an agreement.

Political power resides in the West.

Decisions are biased towards those with high representation in Geneva

Question 10

Can you explain the role of the G7

Answer 10

The G7 is a group of the 7 most powerful economies in the Global North who meet on a regular basis to discuss global issues. It has no headquarters and is essentially a meeting.

Question 11

Strengths of the G7

Answer 11

• Encourages trust and cooperation.

- Allows members to coordinate on collective measures such as climate change.

Question 12

Weaknesses of the G7

Answer 12

• Reinforces North/South divide.
• Unnecessary since the G20 was established.
• Agreements are not binding
• Exclusive membership undermines notion of inclusive economic governance.

Question 13

What is the G20?

Answer 13

The G20 is an international forum for the leaders of the worlds biggest economies both in the Global North and South.

Question 14

Strengths of the G20

Answer 14

Provides states with a forum to discuss global issues.

Encourages global trust and cooperation.

G20 agreed not to adapt protectionist measures during the 2009 financial crisis.

Question 15

Criticisms of the G20

Answer 15

Random membership, Argentina is a member, but Spain is not even though Spain has a larger economy.

Agreements aren’t binding

Question 16

Can you explain the neo-classical approach to poverty and development?

Answer 16

The solution to poverty is to embrace free-market economics to move from a backwards society to a “modern” developed one.

Development should be measured through GDP, levels of international trade and levels of investment.

Question 17

Can you explain the alternative approach to poverty and development?

Answer 17

Principles:
Development means becoming self-relient and should be sustainable and locally controlled.
Its aim is human wellbeing.
It believes that the gap between the rich and poor can be explained by structural imbalances in the world economy.

Measurement of growth:
The ability to fulfil both material and non-material needs through your own effort.

Process:
Bottup up theory
–> local control with reliance on local knowledge and technology and it should be environmentally sound.
- It will often involve a higher level of state intervention than is acceptable to liberals.
- These ideas tend to reflect the views of the global south and have been used to criticise SAPs.

Question 18

Can you explain how world systems theory criticises economic globalisation?

Answer 18

World Systems theory- The idea that resources flow from periphery states to core states making the latter richer at the expense of the periphery states.

Question 19

Can you explain the main claims of neo-colonialism?

Answer 19

Despite political independence, the global south remains subject to economic dependency. Political imperialism has been replaced by economic imperialism/

Question 20

Can you explain how economic governance might be reformed?

Answer 20

The Global South should have greater voting influence in the IMF and the World Bank.

The Bretton Woods institutions should put more focus on alternative forms of development that put greater attention on things such s welfare and sustainability.

Question 21

1944 - Bretton Woods Conference in New Hampshire

Answer 21

1944 - Bretton Woods Conference in New Hampshire

People wanted to rebuild the system after the great depression and the war.
The world payed the price for not cooperating
 The rise of Hitler was due to the economic issues Germany was facing due to the treaty of Versailles and the great depression.
Keynes knew that the world needed to cooperate more.
He believed there should be controls to prevent currencies from fluctuating too much against each other.
They wanted the World Bank and IMF to foster change in poorer economies.

Question 22

Result of Bretton Woods Conference: A new institutional framework

Answer 22

1. Creation of the international monetary fund (IMF)
    Stabilise world economy by providing short term loans.
    Last resort
    e.g. structural adjustment programmes.
2. Creation of the World Bank
    Assist with development through long term loans and guidance
3. Creation of the World Trade Organisation WTO
    GATT until 1995
    Increase trade liberalisation by reducing tariffs.

Question 23

Who are the BRICS countries and what did they set up.

Answer 23

• -> states that feel as though their voice hasn’t been as heard in the Bretton Woods institutions.
• Brazil
• Russia
• India
• China
• South Africa
• They have created 2 of their own multilateral institutions
  1. Contingent reserve arrangement which mimics the activities of the IMF.

2. New Development Bank which mimics the World Bank.
   - China created the AIIP

Question 24

Define

- Structural adjustment programs SAPs

Answer 24

SAPs are programs of economic reform imposed on a state as a condition of receiving an IMF loan, some examples include, government spending cuts and privatisation.

Question 25

Define | - Budget deficit

Answer 25

A budget deficit is when a state is spending more than it is taking in.

Question 26

Define | - Conditionality

Answer 26

If a state receives a loan from the IMF it is often conditional, meaning that the state has to implement reform to overcome the problems that led to them needing a loan in the first place.

Question 27

Orthodox view of poverty and development - Solution to poverty - How - Measurement

Answer 27

Principles: - Unlimited growth is possible under the free-market - Developing economies will reach a "take off" and develop along the lines of Western countries - Wealth will benefit everyone by trickling down through society. - Underdeveloped countries will, therefore, become developed. Measurement? - economic growth measured by GDP - Level of international trade - Level of investment How? - Top-down process relying on external experts. - Investment needed from TNCs largely based in the West. - The private sector will play a large role (private sector tends puts profit before people)

Question 28

The North South divide

Answer 28

North–South divide contrasts the industrialisation and prosperity of the Global North with the poorer and more agricultural Global South. It is best understood as a political rather than a geographical term.

Question 29

Dependency theory

Answer 29

Dependency theory argues that the North and South are in a structured relationship with each other and it is a relationship of dependency which creates poverty. It views underdevelopment in the South as a result of economic exploitation by the North. Process: During colonialism, the North created economies in the South based on the export of primary goods e,g, raw materials and food. --> Following decolonisation, market forces meant that the South suffered from declining trade as the price of primary goods rose more slowly then manufactured goods. --> This leads to the south becoming economically drained by the North

Question 30

Neo- Colonialism

Answer 30

- Despite political independence south remains subject to economic dependency --> Political imperialism has been replaced by economic imperialism Neo-colonialism --> Flow of resources from South to North (established by colonialism) continues as before despite political independence. TNCs - Based in the North - Take advantage of cheap labour/low regulation in the South. - Profits sent back to the North. Debt - Money borrowed from World Bank/ Private sector. - Conditionality/interest-free trap South in submission and poverty. Unfair trade - Western dominated institutions insist on liberalisation (end protectionism) - Domestic markets flooded by cheaper imports ==> Dependency gives the North leverage over the South

Question 31

World Systems Theory

Answer 31

World systems theory rejects the North/ South divide and instead sees the world as one single capitalist economy based on the division of labour between the core, semi-periphery and the periphery. Core regions benefit from capital and technology and exploit the periphery for raw materials and cheap labour. Semi-periphery regions act as an intermediate as it is part of the core and periphery. The 3 zones are in an exploitative relationship where wealth is drained from the periphery to the core. Therefore according to World Systems Theory poverty is inevitable.