GP- Global Governance: Political & Economic-Economic Global Governance

Question 1

What is the IMF?

Answer 1

• Established at the Bretton Woods Conference in 1944.
  
  • It aims to encourage global financial stability by providing technical advice, support and loans to its 190 member states (2023).
  • It is part of economic global governance.

Question 2

What are the core objectives of economic global governance, including the IMF’s role?

Answer 2

• Reducing poverty and improving human development.
  
  • Encouraging and managing global trade.
  • Helping states that get into economic difficulty.

Question 3

How does the IMF maintain international financial stability?

Answer 3

• Lending: The IMF has a fund of reserve assets known as special drawing rights. In 2022 these were worth approximately $880 billion. If a member state is facing a balance of payments crisis, the IMF can step in as a ‘lender of last resort’ providing special drawing rights that enable the recipient state to pay for imports and stabilise its currency, and so regain global confidence. Without such loans, state economics could collapse, bringing down other states with them. This economic contagion’ could then provoke a regional or global economic crisis.
  
  • Surveillance: The IMF monitors the global economic and financial system to detect potential risks to the international economy. It also provides specific policy advice to countries and warns a country if it believes that its policies are likely to be economically damaging. In 2022, the IMF publicly stated that the Truss government’s tax cuts in the UK would fuel inflation, contributing to then prime minister Liz Trus’s swift reversal of policy.
  • Capacity development: The IMF provides technical assistance to nation states on issues such as tax collection, monetary policy, political reform and restructuring the public sector.

Question 4

What is the IMF’s policy based on?

Answer 4

• IMF policy is ideologically based on a classical liberal approach to the global economy.

Question 6

What are Structural Adjustment Programs (SAPs)?

Answer 6

• IMF loans that are conditional on the recipient making economic reforms.
  
  • They are designed to encourage free-market reforms and reduce government control over the economy.
  • They can include policies such as increasing interest rates and cutting public spending to fight inflation, and increasing taxes to reduce government borrowing.

Question 7

What are criticisms of the IMF?

Answer 7

• Critics claim that IMF ‘austerity measures’ come at an unacceptable social cost for the poorest in society and that SAPs can be so draconian they can lead to economic collapse and political extremism.
  
  • In the 1990s, IMF shock therapy in Russia led to economic collapse and the rise of anti-Western nationalist resentments, which President Putin was then able to harness.
  • They also point out that, with 16.5% of the total votes on the IMF board of governors, the USA has structural dominance of IMF policy.
  • This, together with the convention that its managing director is European (Kristalina Georgieva, 2019-, means that the IMF is ill-suited to understand the socioeconomic challenges of the developing world:
    
    • In a notorious case from 2000, the IMF demanded that Tanzania start charging for healthcare and education provision to increase government revenue. Consequently, school enrolment dropped from 98% in 1985 to 66% in 2000 and the AIDS rate increased by 8%.
    • IMF-led austerity measures can be particularly damaging in the developing world where there is already a lack of social provision. In 2019, the IMF required Ecuador to undertake a 6% cut in public spending, provoking demonstrations and unrest among indigenous groups most likely to be affected by the cuts.
    • In 2010, IMF loans to Greece during the European debt crisis required dramatic cuts in public spending and tax hikes. This led to huge social unrest and the rise of extremist political parties, and in 2015, 61% voted in a referendum against accepting IMF loan conditions.
  • One of the three aims of the IMF is to predict likely financial crises. Here its track record has been unimpressive. It did not warn against the financial crises that began in Mexico in 1994, and in Thailand in 1997, which provoked the Southeast Asian Crisis. Notably, it failed to predict the global financial crisis that began in 2008 with the collapse of Lehman Brothers bank.

Question 8

What are arguments in favor of the IMF?

Answer 8

• However, supporters argue that IMF loans provide reassurance to the global economy in times of crisis. This is vital because the international economy is so interconnected that if one state defaults on its debts, it could lead to a global collapse.
  
  • SAPs have also enabled many states to stabilise their economies and so take advantage of the opportunities presented through international free trade. Although balancing the budget and free-market reforms cause short-term distress, they are necessary for long-term prosperity:
    
    • The Covid-19 pandemic (2020-) put unprecedented strains on nation state’s finances. In August 2021, the IMF allocated $650 billion in its greatest ever Special Drawing Rights provision. This proved vital in restoring economic global confidence.
    • In March 2022, the IMF made an emergency $1.4 billion loan to Ukraine to help it economically survive the shock of Russia’s invasion.
    • In 1991, far-reaching IMF free-market reforms enabled India to dramatically rebalance its economy in favour of global trade and investment. Consequently, by 2023, India was ranked the fifth-biggest global economy with a GDP of $3.5 trillion.
    • In 2002, Brazil received a $30 billion loan from the IMF (then its biggest loan) to stop the state defaulting on its debts. Successive Brazilian governments carried through free-market reforms, enabling the country to maintain strong economic growth.
  • The IMF has also become less rigid in its free-market orthodoxy. Since 2005, it has been responsible for a debt-relief programme and since 2009 it has allowed recipient countries more influence over how SAPs are implemented.

Question 9

What is the World Bank?

Answer 9

• Established at the Bretton Woods Conference in 1944.
  
  • It has 190 member states (2023) and is a source of funding for long-term development schemes.
  • It provides a source of funds for economic and social development, mostly through grants to developing states.
  • It comprises the International Bank for Reconstruction and Development (IBRD), which provides loans to middle income countries, and the International Development Agency (IDA), which makes loans and grants to the 75 poorest countries in the world.

Question 10

What are criticisms of the World Bank?

Answer 10

• The USA has a dominant vote share on the World Bank (9.86%) and its president is traditionally an American.
  
  • Like the IMF, World Bank loans often have a free-market focus. This has led critics to argue that the World Bank, like the IMF, is too committed to economic liberal reforms that may not be appropriate in all circumstances. For example:
    
    • Reducing tariffs and encouraging privatisation can cause huge socioeconomic dislocation as once-protected and subsidised industries are exposed to foreign competition.
    • According to world systems theory, encouraging developing states to open their markets may mean they become dependent on cheap imports and so fail to develop industrially. Consequently, they remain in a state of neo-colonial dependency.
  • In 2022, there was also sustained criticism of the World Bank for not committing enough support to developing countries to combat climate change, while providing almost $15 billion to fossil fuel projects despite global attempts to phase out coal use.

Question 11

What are arguments in favor of the World Bank?

Answer 11

• However, supporters of the World Bank respond that this is a gross over-simplification of its work. Not only do free-market reforms empower developing countries to take advantage of opportunities in international trade, but the World Bank also provides critical assistance in terms of female socioeconomic empowerment, sustainable development, education and health, and infrastructure reform:
  
  • In 2021-22, the World Bank lent an unprecedented $114.9 billion to developing countries to support projects designed to lessen the impact of dramatically increased energy and food prices caused by the Russia-Ukraine war.
  • The World Bank and the IMF are both committed to debt relief through the Heavily Indebted Poor Countries (HIPC) initiative. By 2022, $76 billion in debt relief had been awarded to 37 of the world’s poorest countries.
  • The World Bank’s Accelerate Equality initiative is focused on empowering women’s potential across the developing world.
  • In Africa, the World Bank is encouraging universal access to the digital economy by 2030 to drive forward economic growth even in remote rural areas.
  • In 2021, the World Bank provided Ethiopia with $500 million to help it achieve universal access to electricity by 2025.
  • Since corruption is a major obstacle to development, the World Bank is committed to community-driven development (CDD) programmes, which empower communities by allowing them to design and participate in their own development projects.

Question 12

What is the World Trade Organization (WTO)?

Answer 12

• Established in 1995.
  
  • It aims to facilitate global trade by agreeing global trade deals, reducing tariffs and resolving trade disputes between its 164 member states (2023).
  • It is the successor to the General Agreement on Tariffs and Trade (GATT), which was set up in 1947 to encourage nation states to lower tariffs to stimulate world trade.
  • Like the IMF and the World Bank, the WTO originated at the Bretton Woods Conference and so it is part of the Bretton Woods system.

Question 13

How does the WTO function?

Answer 13

• Each member possesses a veto, which means that all agreements need to be unanimous. This, of course, makes reaching consensus difficult.
  
  • The WTO aims to reduce and even eliminate tariffs (or taxes) imposed by states on imports from other states to liberalise and encourage global free trade.
  • According to classical economic theory, global trade is thereby increased, so encouraging greater global wealth and fostering development.
  • The WTO achieves this through ‘negotiating rounds’, which attempt to create consensus on reducing tariffs on specific goods or services.
  • At the organisation’s core is the most favoured nation principle. This means that once an agreement is reached, member states cannot discriminate against other member states. In other words, all members benefit from the lowest possible tariffs agreed, so all are ‘most favoured’.
  • Nation states are still able to negotiate free-trade agreements between each other. For example:
    
    • the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) signed in 2018 established a free-trade area between 11 countries in the Pacific region worth $13.5 trillion
    • the Regional Comprehensive Economic Partnership (RCEP) was established in 2020 and is the biggest free-trade agreement in the world, bringing together the largest economies in Asia-Pacific.
  • However, if no such trade deal is in place, countries will trade under WTO rules, which aim to reduce tariffs to the minimum that member states are prepared to accept.
  • If member states disobey WTO rules, they can be held accountable through fines and/or tariffs.
  • The WTO can also resolve trade disputes between states.
  • Unlike the IMF and the World Bank, the developed world has structural dominance of the WTO. In 2021, for example, Ngozi Okonjo-Iweala of Nigeria became its Director-General.

Question 14

What are the WTO’s successes?

Answer 14

• Trade liberalisation (the reduction of tariffs to encourage free trade) has dramatically increased global trade, leading to a 4300% growth in world trade from 1950 to 2021.
  
  • The value of world trade has increased by 6% from 1995, when the WTO was established, to 2021.
  • The WTO’s World Trade Report (2022) emphasised the importance of reducing tariffs in green energy products: ‘The WTO estimates that reducing tariffs and non-tariff measures on energy related environmental goods could increase total exports of these products by 5 per cent by 2030 and, at the same time, lead to a net reduction in carbon emissions.
  • In 2022, the WTO negotiated an agreement reducing over-fishing and allowing developing countries to produce and export Covid-19 vaccines.
  • Significant trade disputes have also been resolved at the WTO:
    
    • In 2021, a 17-year trade dispute between the EU and the USA over aircraft subsidies was finally resolved after the WTO ruled that both Boeing and Airbus had received illegal benefits.
    • In 2023, the WTO ruled in a damaging trade dispute over the justification for China’s tariffs on Australian barley and wine.

Question 15

What are criticisms of the WTO?

Answer 15

• However, the WTO also has its critics:
  
  • Like other institutions of global governance, the extent to which the WTO can coerce nation states is unresolved. US concerns that the WTO’s Appellate Body (court) wields too much power led to it blocking the appointment of new judges, meaning that from 2019 the court was unable to operate.
  • Although the WTO ruled that the tariffs imposed by the Trump administration on China were ‘inconsistent’ with global trade rules, the USA refused to soften its approach, so provoking a damaging trade war with China, which the Biden administration continued.
  • WTO trade negotiations pay insufficient regard to human and labour rights. Consequently, trade liberalisation can lead to workers being exploited in sweated industries in the developing world.
  • Instead of encouraging trust and understanding, WTO trade rounds increase tension between the developing and developed world. The Doha trade round (2001) was designed to open developed markets to the developing world, especially its agricultural products. However, it collapsed into recrimination and hostility as developed countries and the EU refused to compromise over subsidies to their agricultural sectors.
  • A strength of the World Trade Organization (WTO) is that it gives all members equal influence. Therefore, powerful interests cannot dominate it. However, the need for unanimity can make progress on trade deals painfully slow. The Doha trade round, which began in 2001, stalled in 2015 because the interests of the developed and developing world could not be reconciled. Critics have therefore suggested that the WTO is no longer needed since it is much more effective at negotiating trade deals between smaller groups of nation states and regional organisations which share similar interests.

Question 16

What are informal forums?

Answer 16

• The most economically powerful states have created two informal forums to promote discussion and cooperation.
  
  • These are not IGOs, as they have no headquarters, central budget or fixed responsibilities.
  • They allow states to discuss common interests and make ad-hoc agreements.

Question 17

What is the Group of Seven/Eight (G7/8)?

Answer 17

• An intergovernmental forum formed in 1976 to enable discussion and partnership between its members.
  
  • It brings together the leaders of the strongest economies in the developed world (the USA, the UK, France, Germany, Italy, Japan and Canada).
  • Russia joined in 1997, making it the Group of Eight (G8), but was expelled in 2014 after it annexed Crimea.
  • The EU also enjoys full membership rights, although it does not host meetings.
  • The G7 states rotate holding the presidency for a year, including hosting the leaders’ annual summit. Japan held the presidency in 2023 and Italy in 2024.
  • Although the G7/8 was originally founded to focus on economic issues, its agenda is flexible and can cover any matters that its members want to discuss, from counter-terrorism to global poverty.
  • It has no central budget and each summit issues a non-binding statement of what was agreed.

Question 18

What are criticisms of the G7/8?

Answer 18

• Unlike formal IGOs, the G7 is a group of like-minded member states. It has therefore been criticised for being elitist and for contributing to the structural imbalance in global power by excluding powerful emerging economies in the developing world.
  
  • The communiques the G7 issues at the end of each conference are also non-binding, so critics claim that their meetings are comparatively meaningless.

Question 19

What are arguments in favor of the G7/8?

Answer 19

• However, the G7 provides an important opportunity for world leaders to discuss pressing issues and cooperate on solutions. In 2021, the G7 conference hosted by the UK at Carbis Bay in Cornwall committed member states to a 15% minimum corporation tax. This was designed to stop countries attracting transnational corporations through “beggar thy neighbour” tax cuts and ensuring that they pay a fair share of tax. The conference also confirmed members’ urgent commitment to limiting temperature rise to 1.5°C this century.
  
  • The Russian invasion of Ukraine (2022) and Chinese economic and military expansion have also challenged Western security. Realists therefore regard G7 meetings as increasingly important opportunities for members to develop a collective response to shared security concerns.
  • The UK hosted the G8 in 2005 in Gleneagles, Scotland. After pressure from the Make Poverty History global campaign, Prime Minister Tony Blair focused on cancelling debt to developing states. Agreement was reached to cancel $40 billion of debt owed by 18 heavily indebted poor countries

Question 20

What is the G20?

Answer 20

The Group of Twenty (G20) was established in 1999.
* It is an informal forum.
* It has no fixed agenda, budget or headquarters.
* Its membership includes the biggest economies in the developed and the developing world.
* It includes emerging economies such as China, India and Brazil as well as Russia.
* Several IGOs and regional organisations are permanently invited to its meetings, including the African Union, the Association of Southeast Asian Nations, the IMF and the World Bank.
* One state holds the presidency for a year and hosts the G20’s annual summit.

Question 21

What are the positive aspects of the G20?

Answer 21

• The involvement of IGOs and regional organisations provides a valuable opportunity for member states to coordinate a coherent response to pressing global problems.
  
  • Its wider membership makes it more inclusive and a useful forum for developed and developing states to work together.
  • Given increased global tensions, the G20 also provides an important opportunity for informal talks between member states with competing interests.
  • According to Winston Churchill’s dictum that ‘Jaw, jaw is better than war, war’, there is a strong case to suggest that G20 meetings are more important than ever before.

Question 22

What are the negative aspects or limitations of the G20?

Answer 22

• The membership of the G20 is much more diverse than that of the G7, which can make agreement difficult.
  
  • Consequently, its communiques can be even more diluted than those of the G7 because more members need to agree.
  • For example, the G20 summit in Rome (2021) committed members to ‘meaningful and effective actions’ to combat climate change, but without making measurable commitments.
  • The Bali conference also demonstrated the limitations of the G20, since in its final communique it could only agree that ‘most members strongly condemned the war in Ukraine’, although all members agreed that ‘the use or threat of use of nuclear weapons is inadmissible.

Question 23

What are some specific actions or examples of the G20 in action?

Answer 23

• In 2009, Prime Minister Gordon Brown hosted the G20 in London during the global financial crisis, securing agreement from members to use state funds to bail out private banks and not to revert to tariffs.
  
  • In 2022, at the G20 meeting in Bali, President Biden met with President Xi and promised there would be no new Cold War’ with China.