11 October, 2012
In 1944, in an effort to reorganize the International economic system, the United States, the British Empire and their powerful allies convened a meeting in New Hampshire. At the end of the meeting, two powerful organizations, mostly known as the Bretton Woods Institutions, were born: the International Monetary System (IMF), the International Bank for Reconstruction and Development (IBRD) known today as the World Bank. Four years later, under the leadership of the United States, The General Agreement on Tariff and Trade (GATT), which will later be replaced by the World Trade Organization (WTO), came into being. The roles of these various organizations in the realm of international economy are subject to controversies opposing two groups of scholars. One group argues that "international organizations such as the WTO, the IMF and the World Bank provide spaces for dispute resolution and positive negotiation, they encourage cooperation and help member countries deal with short-term problems. Overall, this school argues, international organizations make all participants better off." On the other hand, another group "sees these institutions as instruments of powerful states – instruments created and used with the sole purpose of advancing the national interests of hegemonic states." This paper is an attempt to evaluate these contradicting views by the use of theoretical and empirical tools.
Let us first focus on scholars
who argue in favor of international organizations as instruments for promoting
peace, stability, and welfare gains for all member countries.
Robert Keohane "argues that international regimes are a necessary feature of the world economy and are required to facilitate efficient operation of the international economy… International regimes are created by self centered states in order to further both individual and collective interests."(Gilpin p.84)
This theory claims that a hegemonic power is highly required, and indeed, is necessary in order to stabilize the global economy. Many scholars support this thesis and back it with historical facts. With the presence of one single hegemonic power assuming leadership, the world is most likely to be spared from major conflicts. Disputes among nations are prevented beforehand by pre-established binding laws and rules of international organizations. If conflicts arise, they are efficient mechanisms set in place to resolve them.
Barry Eichengreen used three different monetary systems to assess the viability of the hegemonic stability theory. The period before 1914 was known as the classical gold standard monetary system. The United Kingdom used its hegemonic supremacy over the world to safeguard the stability of the international monetary system. Then, he describes the period of the two world wars as the interwar gold exchange which witnessed the fall of the international monetary system due to the absence of a hegemonic power. During these periods, the United Kingdoms' power was declining, and the United States refused to take leadership. Finally came the period after 1945, corresponding to the Bretton Woods' system, with the rise of the United States leadership as a hegemonic power. The United States exercised its leadership role in collaboration with Canada, Japan, and Western Europe to restore the world monetary system.
The main argument is that a hegemonic power is indispensable to ensure a well functioning world order which promotes stability through international cooperation. In the absence of a hegemonic power, the monetary system will break down. Eichengreen argues that no one can deny the fact that the stability of the international monetary system resided in the hands of a hegemonic power."Without a hegemon, international cooperation in trade, monetary, and most other matters in international affairs becomes exceptionally difficult, if not impossible, to achieve."(Gilpin p.95)
These defined goals are subject to controversies. According to certain scholars, these various international organizations were designed with the common goals to promote the neoliberal ideology of a market-based system through free trade.
Gilpin argues "according to Strange, regime theory was at best a passing fad, and at worst a potential device designed to legitimate America's continuing domination of the world economy. Strange and other critics alleged that such international regimes as those governing trade and monetary affairs had been economically, politically, and ideologically biased in America's favor, and that these regimes were put in place by American power, reflected American interests, and were not… politically and economically neutral."(Gilpin p. 85). Strange took a very strong stand against the regime theory. International organizations have been devised to regulate the global economy according to the wish of neoliberal ideology, which consist of removing barriers for free trade so that multinational corporations can have a broader access to the world market. These goals are in line with American ideology.
Capital mobility and trade in the global market created interdependence between national and international economies. As much as we want to believe that the different parties cooperate on the basis of common interest, the nature of this cooperation revealed that states' national interests are more often undermined in the profit of the multinational corporations.
States' national interests
clashed with multinational corporations' interests.
States national interests promote economic growth for the welfare of their own people, whereas multinational firms look for opportunities to exploit states' national wealth for their own sake.
This clash of interests ultimately leads to resentments, protests and conflicts. That is why, all over the world, voices are expressing radical oppositions to the neoliberal ideology. Protests are being held on the street by not-for-profit organizations (NGOs), human rights groups, and environmental groups, "to demand that the IMF, WTO, and World Bank be made more accountable to environmental, human workers rights, and to other human rights... the world's less developed countries was drafting demands for a larger share of the world's wealth."(Gilpin p. 404).
Jeffrey Sachs, while describing the controversial role of the IMF in the East Asian financial crisis, has stated that "a careful examination of the actual record shows that the IMF, loyal to financial orthodoxy and mindful of creditors to the neglect of debtor countries, often pours oil on the flame."(Sachs, p. 16).
It was in a context of a deep recession caused, among other factors, by a substantial increase of the cost of a barrel of oil ($3 - $12), that the International Monetary Fund (IMF) and the World Bank (WB) decided to impose a program called Structural Adjustment policies on third world countries such as Africa. They were a set of policies prescribing that these countries liberalized their economy, and balanced their budget by undergoing cuts in unproductive sectors. The policies have had devastating effects on socio-economic and environmental sectors. It is interestingly relevant to note that these restructuring measures espouse the neoclassical theory of economy which position the market at the center stage and give a secondary role to the state. It is clearly evident that the underlying objective was to integrate developing countries in the world trading system by removing government, as the primary social welfare provider, from the economic activities.
In the case of the World Trade Organization, many cases such as hormone-treated beef, and sea turtles, were brought up for dispute, but they were settled in favor of the corporations.
It appears that the two schools of thought have made, to a certain extent, valid arguments in regards to international organizations. Even though they provide space for dispute resolution, encourage cooperation and help member countries deal with short-term problems, they still are instruments created by and used for advancing the national interests of hegemonic states. The fact remains that nations don't have friends, but interests. Thus, it is in the discretion of non-hegemonic nations to exercise their sovereignty and operate on the basis of their self interests.
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11 October, 2012
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11 October, 2012