International institutions in the globalizing economy
Globalization has been joined by the creation of many international institutions such as IMF, World Bank and a myriad of United Nations subsidiaries. However, the process goes both ways. On the one hand, increased economic interdependency requires international institutions to regulate and monitor the world economy. On the other, the very creation of international institutions links sovereign states together and transform state sovereignty into the shared exercise of power (Held and McGrew, 2004:12).
Members voluntarily join a supra-national entity such as the World Trade Organization (WTO). Due to pressure of joining and complexity of leaving, it is nonetheless argued to violate national sovereignty (Singer, 2002:70). Indeed, Cohn (2010:237) stresses that the state now has to share authority with international institutions.
Institutional liberals contend globalization and interdependency to create a need for international institutions in order to deal with an increasingly complex system of collective action (Jackson and Sorensen, 1999:208). International collaboration has not only become a necessary requirement for managing the consequences of an integrating economy. Global warming, epidemics, terrorists and illegal immigrants do not recognize states borders; neither can the policies for their effective management and resolution (Held and McGrew, 2004:11).
Mindful increased financial market volatility; many scholars have recognized the importance of established institutions but also argued for the creation of new regulatory entities. Jeffrey Sachs proposes an international bankruptcy court and George Soros a formation of an international deposit insurance corporation. Henry Kaufman argues for a single global regulatory body of financial markets and institutions and Jeffery Garten a world central bank with the responsibility of overseeing a new global currency (Rogoff, 1999:21). Paul Volcker stresses similar ideas of a global currency, emphasizing that the demise of the Bretton Wood’s (due to the breakdown of pegged exchange rates) has not been followed by a coherent new system (Volcker, 2006: 6).
Hence, with increased economic interdependency and a declining state authority over the national economy, international institutions have a significant role to play. The most influential and imperative have been the IMF, Word Bank and WTO (Woods, 2006:4).
The role of IMF and multilateral economic institutions
In particular, the IMF has played a major role in recent crises as a lender of last resort, albeit it’s initial agenda was rather different (Rogoff, 1999:22). The IMF was originally created in 1945 to prevent market failures on the presumption that markets do not work well without regulation. Albeit, during the last 30 years, the Fund as been subject to the dominating view of market fundamentalism. In the frame of neo-liberalism, this has been the preeminent view of how to (not) monitor the economy (Stiglitz, 2002:14). Undeniably, this embodies an obvious paradox. IMF is a public institution designed to manage certain market failures. Yet, the economists running it have little trust in public institutions but major confidence in the market (Stiglitz, 2002:5).
Furthermore, Stiglitz argues governance is the fundamental problem of international economic institutions as there is a lot of controversy regarding the question of what policies they apply. It is often forgotten that IMF is a public institution, operating by money provided by taxpayers. Instead of reporting directly to the citizens who finance or the people affected by its actions, it reports to the countries central banks and ministers of finance. In addition, the Fund is subject to a complex voting system largely based the economic power of countries after the World War II. Despite some adjustments, the power is still in the hands of the advanced developed nations and United States having effective veto (Stiglitz, 2002:8).
John Maynard Keynes, one of the founding father’s of the IMF hoped that if it together with the World Bank were to stay true to their founding principles "the brotherhood of man will have become more than a phrase" (Keynes, 1980:103). Questionably, this has not been the case (Woods, 2000:4).
International institutions and its critics
Although liberals view the IMF, Word Bank, and WTO as vital instruments of promoting economic openness and efficiency, its operations and structure seem to not have followed Keynes initial agenda. By heavy influenced by western powers, mercantilism provides a framework for explanation as the theory claims international institutions to be creatures of the most powerful member states (Jackson and Sorensen, 1999:209).
Neo-Marxists believe international institutions to be tools used by capitalist core states to exploit less developed countries. Indeed, Robert Cox argues that the world economy is characterized by dependence rather than interdependence. The economic power lies with United States and rich OECD countries and therefore weaker countries of the developing will not benefit. US scholarship seems to ignore the distributional effects of institutions such as the IMF and WTO (Jackson and Sorensen, 1999:211). Consider the following quotation:
While promoters of globalization proclaim that this model is the rising tide that will lift all boats, citizen movements find that it is instead lifting only yachts. – International Forum on Globalization in Goldin and Reinert 2007:1
The major charge against the WTO is that it makes the rich richer and the world’s poor even worse off. In a research conducted in 38 states of the impact of openness to world trade on economic gains for different groups within the population. The study found that the majority benefits from globalization, but the burden falls on the poorest 40 percent (Singer 2002: 89).
Coller asserts there is a group of people that is falling behind – the “one billion that is stuck at the bottom” (Coller, 2007:1). For these people, WTO trade policies, Word Bank projects and IMF’s structural adjustment programs can have influences of lives and death. In a globalizing world with material comfort, international travel and economic interdependence the western world is profoundly vulnerable to these ‘islands of chaos’. Integration will become much harder as the bottom billion diverges from an increasingly sophisticated world why this is not only a problem for the one billion falling behind (Coller, 2007:2).
The globalizing economy is a highly uneven process. Despite the existence of international institutions to promote economic development and equality, we see relatively little sharing by the rich with the poor. Realists claim this is due to the fact that modern states are highly self-centered and seldom considerate of the welfare of other populations (Gilpin, 2001:402). Yet, peoples worldwide seem to be in strong opposition to the role international institutions have played.
Massive protests have come to mark most international conferences, for instance, the WTO meeting in Seattle in 1999 (Singer, 2002:51). Although the call for change has been palpable, large institutional changes may seem unrealistic and infeasible. It was not long ago a break-up of the Soviet Union and reunification of East and West Germany seemed as unlikely as a single European currency. Conceivably, major institutional changes seem believable only when actually happening, at which point they seem foreordained (Rogoff, 1999:25).
The current process of an integrating economy is very much similar to the way national economies were created. However, national governments were accountable to its citizens during the process of nationalization; today, there is no accountable world government to oversee the process of globalization. Instead we see specialized international organizations such as the Word Bank, the IMF and the WTO, together with a few players (the commerce, finance, and trade ministers), running and regulating the process of a globalizing economy (Stiglitz, February 1998).
Indeed, institutions have been established to deal with certain specific issues such as economic development or climate change, yet problems are inevitably intertwined. Political conflicts could cause economic crises and a financial collapse could possibly lead to severe political instability, mindful the ongoing struggle of the Euro-zone. Environmental degradation can force people into poverty and poverty can result in environmental degradations.
This essay focuses on the globalizing world economy, however, international collaboration has become an important tool for managing the consequences of a globalizing world. McGrew (2006:10) asserts globalization is here to stay and the only move forward is to make it work.
Conclusion
This essay has elaborated on the importance of international institutions in the globalized economy. It is argued that multilateral economic institutions such as the IMF and World Bank must exist because of the necessity to solve problems of an increasingly global scale. With a declining state authority over the national economy, international institutions undeniably play an important role.
Institutional liberals argue that collaboration between nations is necessary in order to solve economic challenges stemming from globalization. Increased economic interdependence has resulted international institutions playing a vital role in the global economy. However, it is important to recognize the controversy such regulatory institutions have caused. In terms of realism and mercantilism, this essay acknowledges the influence and dominance of western powers in such institutions as countries often act in term of self-interests. Neo-Marxists argue that world has become more dependent rather than interdependent and the advanced developed countries seem to use institutions as instruments to exploit weaker states. Disturbingly, there seem to be major economic inequalities yet to solve.
To conclude, international institutions play an important role in the globalizing economy, however, not equally serving all peoples and nations. Keynes created the IMF with the liberal belief that multilateral cooperation would lead to a more stable and peaceful world. Today, the dominance of western powers is preeminent in such multilateral economic institutions. Hence, the question remains if "the brotherhood of man will [ever] become more than a phrase" (Keynes 1980:103).
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