Governing the Global Economy
The Future of Multilateral Economic
Institutions
Chapter 4; Richard Higgott in Beeson and Bisley
Global Governance
• Global governance is a model of global politics
where there is no supranational authority in
terms of sovereignty and decision-making
body apart from ‘state’ but there are certain
binding norms and rules.
• It is a broad and dynamic process of
interactive decision-making at the global level.
Competing models of global politics
No Supranational
Authority
Supranational Authority
No binding norms and
rules
International Anarchy
Global Hegemony
Binding norms and rules
Global Governance
World Government
Bretton Woods Institutions
• Multilateralism is a form of a global
governance
• One of the best example to multilateralism is
Bretton Woods Institutions.
• They were established to reconstruct the
international economic and financial systems
after the 2nd World War.
Result
 IMF
Problems of the post –war
period : financial instability
due to two world wars.
Objective: laying down the
foundations of a liberal
multilateral trading
system; preventing
economic crisis, reaching a
more stable and equitable
international economy.
World Bank(International
Bank for Reconstruction
and Development, IBRD)
World Trade
Organization(initially
General Agreement on
Tarrifs and Trade)
Multilalteralism and the Limits of
Global Governance
• Global governance (GG) is an over-used and
under-specified concept.
• The search for meaningful use is a reflection
of the growing despair over the mismatch
between the overdevelopment of the global
economy and the under-development of a
comparable global polity.
Multilalteralism and the Limits of
Global Governance
The economic multilateralism of the 20th century Bretton
Woods Institutions (IMF and WB), the WTO—will become
unsustainable. It will do so for at least three reasons.
• (1) The nature of what constitute ‘public goods’ in the
21st century global economy is strongly contested.
• (2) Both the ability and political will of the US to play
the role of self-binding hegemon, under-writing
multilateralism, is problematic to say the least.
• (3) Resistance amongst the world’s ‘rule takers’ to a
hegemonic global order is growing.
Liberal Multilateral Trading System
Open and competitive
international economy
Form of collective action,
recognition of common interests
Main problematic of this chapter; (today’s discussion topic)
Are those international economic institutions still operating their tasks?
Do we still need them in a globalized world of the 21st century?
• The character of the 21st century’s globalized
world;
High level of economic interdependence
"dependent on others for some needs." In
other words, you can't produce everything you
need.
A characteristics of a society or macroeconomy
with a high degree of division of labor, where
people depend on other people to produce
most of the goods and services required to
sustain life and living.
Principles of
Multilateralism
(1) All participant countries must be
treated alike; Principle of nondiscrimination
(2) They have to behave as if they
were a single entity; Principle of
indivisibility
(3)Obligations among countries must
have a general and enduring
character; Principle of diffuse
reciprocity
equal or identical advantages or
disadvantages resulted from the
rules and norms
• Multilateralism is a process
that coordinates behaviour
among three or more
countries on the basis of
generalized norms and
rules within a world of high
level of economic
interdependence.
History of the Bretton Woods
Institutions
• Bretton Woods agreement is a clear example
of the multilateralism.
• They became prominent in the post-1945
period.
• IMF, World Bank and GATT were under
influence of USA and this dominance has an
historical explanation.
• USA emerged from the World War II as the
world’s predominant military and economic
power.
• Conference initiated by USA and took place on
US soil in Bretton Woods, New Hampshire.
• USA was the leading force in the negotiation,
effectively dictated some key outcomes which
shaped the world politics in the post war
period.
What were the US priorities in relation
to Bretton Woods
• Re-establishing full employment , thus need to
ensure that domestic growth levels could be
sustained in the post war period. So, the
international economic system should be
OPEN and STABLE.
• Need to contain the spread of communism.
Threat of the Soviet Union. Thus, USA seek
ways promoting recovery and reconstruction
of post-war Europe(especially Germany).
The idea behind the Bretton Woods
System
• Those institutions reflected a faith in classical
political economy and doctrine of laissez-faire
literally means leave to,
principle of non-intervention
in economic affairs, the idea that
economy works best when left alone
by governments
There was one more factor
which shaped Bretton
Woods;
There was one more factor which
shaped Breeton Woods;
Great Depression demonstrated that
unregulated international economy
was unstable.
In line with the ideas of Keynes
markets had to be “managed”.
All industrialized states in the post war
period adopted Keynesian techniques
of economic management
• Keynesian techniques of
economic managment;
fiscal policy( government
spending and taxation) used to
deliver growth and keep
unemployment low.
• Bretton Woods attempt to establish a
Keynesian style regulative framework for the
post-war international economy.
• This was a mixture of free trade, free capital
movement and stable currencies.
The fate of the Bretton Woods
System(I)
• For at least two decades until 1970s, it achieved
its goal of sustained economic development. We
name 50s and 60s as “Golden Age”.
• But there are different views on how far Bretton
Woods era of multilateral governance
contributed to the economic boom.
• Some radical theorists argue that the principal
motor for growth was high and sustained military
expenditure legitimized by the Cold War.
The fate of the Bretton Woods
System(II)
• In 1970s there came an economic stagnation
period with rising unemployment which was
linked to high inflation.
• G7(Group of Seven) as a group consisting of the
finance ministers of seven developed nations: the
U.S., U.K., France, Germany, Italy, Canada and
Japan is a product of this crisis where the leaders
and finance ministers of those countries started
to meet on a regular basis to discuss monetary
issues. (good example of multilateralism)
The fate of the Bretton Woods
System(III)
• During 1980s, the institutions of global economic
governance started to change around the ideas of
“Washington Consensus”.
• The term coined by John Williamson(1990-1993) to
describe the policies that the international institutions
based in Washington, namely IMF, The World Bank and
US Treasury Department had come to favour for a
reconstruction.
• More neoliberal policies; tax reform(cutting personal
and corporate taxes), trade liberalization(e.g trade of
goods without taxes) and privatization.
Evolving roles of Bretton Woods
Institutions
• In 1980s and 1990s, IMF mainly tried to enforce
‘neoliberal’ agenda of economic liberalization(
through its loan programme ‘Structural
Adjustment Facility’)
But there were conditionalities,
in order to receive loans,
countries in economic crisis
were required to adopt neoliberal policies (e.g. privatize
public assets, cut government spending,
reduce regulation and liberalize capital accounts)
• These conditionalities were problematic for the way
they involved the IMF in the domestic affairs of some
of its members.
• World Bank started as a facilitator of European
reconstruction. Its mission today is to reduce poverty
and support development.
• It had supported neo-liberal reforms in the
developing world.
Why developing countries are opposing the
development model of IMF
• Is the IMF imposing a limited and a bad development model?
• Unlike the path historically followed by the industrialized countries, the
IMF forces countries from the Global South to prioritize export production
over the development of diversified domestic economies.
• Nearly 80 percent of all malnourished children in the developing world live
in countries where farmers have been forced to shift from food production
for local consumption to the production of export crops destined for
wealthy countries.
• The IMF also requires countries to eliminate assistance to domestic
industries while providing benefits for multinational corporations -- such
as forcibly lowering labor costs.
• Small businesses and farmers can't compete. Sweatshop workers in free
trade zones set up by the IMF and World Bank earn starvation wages, live
in deplorable conditions, and are unable to provide for their families.
• The cycle of poverty is perpetuated, not eliminated, as governments' debt
to the IMF grows.
Future of Multilateral Economic
Governance
• Crisis have occurred on a regular basis; 30s
60s
80s
1997-98 Asian Crisis
2007-09
• This raises the question do those institutions
highlight, in advance, key instabilities and
crisis tendencies. Do we really need them?
WHY?
It was deeper, most
severe downturn since
1930s.( Global GDP fell
in 2009 by 1.7 per cent.
Volume of world trade
dropped by 6.1 per
cent).
It effected every
country in the world.
It originated within
the heart of the finance.
Thus 2007-09 crisis led
to calls for urgent
reforms in the
architecture of global
economic governance.
Global Financial Crisis of 200709 pose a considerable
challenge for those institutions
Do we really need them?
 Some believes that some form of regulation are so
specialized that only a handful of experts, practitioners
or other insiders can claim to understand them.
 They are not democratically elected bodies. So their
legitimacy is drawn indirectly from the legitimacy of
their member states.
 The legitimacy of multilateralism, is embedded in
shared norms(usually elites, rather than wider national
publics) and is underwritten by judicial instruments(
such as the International Criminal Court or the Dispute
Settlement Mechanism of the WTO.
Next Class Discussion Paper
R Higgott, Multilalteralism and the Limits of
Global Governance, CSGR Working Paper No.
134/04, May 2004