BOOK ONE: 2015 - GLOBALIZATION

Chapter One: Economic Globalization

IX. The Global 'Multilateral' Economic Organizations

The World Trade Organization

The WTO (given much fuller treatment in a subsequent chapter, as arguably the most important, albeit the smallest, of all the international economic organisations) has existed as such only from 1995, but it had evolved by degrees out of the GATT (General Agreement on Trade and Tariffs), founded in 1947 as a forum for negotiating lower customs duty rates and other trade barriers. The text of the General Agreement spelt out important rules, particularly non-discrimination, and the major trading nations which signed up to the GATT contracted to obey those rules.

The GATT, updated in 1995 when the WTO was founded, has become the WTO’s umbrella agreement for trade in goods. It has annexes dealing with specific sectors such as agriculture and textiles, and with parallel issues such as state trading, product standards, subsidies and actions taken against dumping.

Possibly it is unfair to say that nation states have been an incubus on the back of the market, given that it was just those monsters who created the WTO. But not all ministers shared the economic heresies of governments, then or now; and a small number of visionary figures among whom John Maynard Keynes and US Treasury Secretary Henry Morgenthau were two of the brightest stars, able to persuade governments to go along with the GATT. Had they realised what they were letting themselves in for, they might have put up more resistance! Little by little, the GATT and the WTO have come to dominate world trade in goods. It is true that the Doha Round, the WTO's latest major initiative, has seemed very shaky in the last five years; but the momentum for progress is still there, even if much of it may be by way of bilateral deals in the short term.

The other two Bretton Woods institutions were the International Bank for Reconstruction and Development (now known as the World Bank), and the International Monetary Fund. Significantly, Henry Morgenthau told the conference that the establishment of the Bretton Woods institutions marked the end of economic nationalism; and so it has proved.

The summary of agreements from July 22, 1944 states: "The nations should consult and agree on international monetary changes which affect each other. They should outlaw practices which are agreed to be harmful to world prosperity, and they should assist each other to overcome short-term exchange difficulties."

Although neither the IMF nor the World Bank (or its regional cousins such as the EBRD) has quite fulfilled the intentions of their founders, that is to say, they have not been the instruments through which the allied 'western' nations could impose economic stability on the world economic order, they have nonetheless achieved substantial power internationally, the IMF perhaps more than the World Bank.

The International Monetary Fund

The IMF and its advisory sibling the OECD are the standard-bearers of economic orthodoxy. It is arguable that the IMF, whose primary stated purpose was exchange rate management, lost its way after the system of fixed exchange rates broke down under the weight of economic forces in the 1970s.

The IMF's own (modernized) 'mission statement' is: 'The IMF is an organization of 184 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty.'

Paradoxically, the nation states which fund the IMF probably see it as actively helpful towards their individual economic well-being; whereas the reality is that it forms part of a developing global carapace of regulation whose clutches individual member states are no longer able to escape. From this aspect, the crucial work of the IMF is standard-setting, an activity shared by all of the 'multilaterals', including also the World Bank and the Basle Committee on Banking Supervision on a fiduciary level and the OECD in fiscal affairs, to mention just the most prominent of global economic standard-setting bodies.

The IMF has also given its name to a Code of Conduct that emerged from persistent sovereign debt crises: The Principles for Stable Capital Flows and Fair Debt Restructuring in Emerging Markets. This was formulated in 2004 between the representatives of emerging market countries and private sector creditors 11.

The future of the IMF is problematic, and it may not survive the first half of the 21st century as an independent institution. It has played a useful part in helping the development of sound fiscal regimes in many 1st, 2nd and 3rd world countries, but its task is nearly done.

The World Bank

Like the IMF, the World Bank has also metamorphosed from its original conception: set up as a source of funds to underpin the reconstruction of a battered Europe, it has become an instrument of international do-goodery, heavily focused on developing economies, poverty and the environment. If you want, it forms a part of the conscience of the first world. No doubt this is a valuable role, although many question the World Bank's methods. From a globalizer's perspective, however, what is significant about the World Bank is its involvement as noted above in standard-setting, particularly in association with the IMF, under the general rubric of the 'Bank/Fund Initiative on Standards and Codes'.

As for the IMF, the future of the World Bank is likely to be troubled, and it may find itself without an intervention role in due time. Its rule-making role would then probably be subsumed into another institution, or it might be transformed (once again!) into a different type of organization.

Says Ngaire Woods 12: 'The challenge for the IMF and the World Bank . . . . is economic policy made in a more transparent, openly contested, publicly debated, and democratic way. That process is likely to be messy, complex and time-consuming; it will often thwart rapid reform, and it will certainly marginalize the role of the IMF and the World Bank.'

The OECD

The OECD (Organization for Economic Cooperation and Development) is an organization which has power and influence out of all proportion to its size. Like the Bretton Woods bodies, it was founded after WWII as the Organisation for European Economic Co-operation, in order to administer American and Canadian aid under the Marshall Plan for the reconstruction of Europe. It transmogrified into the OECD in 1961, and has been described as 'an international organization of those developed countries that accept the principles of representative democracy and a free market economy'. It has 30 members, including all of the major economic powers other than Russia and China.

The OECD describes its global ambitions thus: 'After more than four decades, the OECD is moving beyond a focus on its own countries and is setting its analytical sights on those countries – today nearly the whole world – that embrace the market economy.'

That sounds innocent enough. Unfortunately, the OECD has become the instrument of cash-strapped finance ministers in trying to rein in free-wheeling international companies and control what it portrays as the excesses of low-tax ('offshore') countries. In its new crusading guise the OECD does not attempt to manage the essential dichotomy between free markets and Colbertian tax-collection; instead, it has become the instrument of debt-ridden socialistic economies, many of them in the EU, effectively betraying its original mission.

The changing role of the OECD does not however affect its potency as a standard-setter, particularly in fiscal matters and through its subsidiary the FATF (Financial Action Task Force) in the area of financial transparency (money laundering, to be more blunt). Although it consists directly of only 30 members, compared with the 150 in the WTO and the 184 in the IMF, its members' domination of the world economy ensure that its writ runs wide.

Of course this raises the question of national versus regional or global government. The European Parliament and the European Commission have got quite a lot to say about this subject, not to mention the US Congress and the national parliaments of European nations and the Japanese Diet. But the straw is there, hanging in the wind. Despite its distaste for the OECD's anti-business fiscal agenda, a multinational company, swapping its executives between countries on a weekly basis and with 200,000 employees in 50 countries, would be only too happy to see, for instance, one international code of practice for its pensions provision. Who can doubt that one day, the OECD (or one of its competitors, the World Bank, say) will become the chosen instrument of national legislatures to come up with a set of 'pension guidelines', which after five years will become a 'Code', and in 10 years will be 'Regulations' with grandfather clauses, sunset dates and all the rest?

It also raises the issue of democratic accountability for supra-national organizations, whose officers are often appointed by member states in a process which is anything but transparent. This aspect of globalization is addressed in a number of later chapters.

References:

11 Truman, E M, ed, (2006) Reforming The IMF For The 21st Century, Institute for International Economics, Washington

12 Woods, N (2006) The Globalizers – The IMF, the World Bank and Their Borrowers, Cornell University Press