The following paper draws on a comparative analysis of two essays written by Joseph E. Stiglitz: The Future of Global Governance (written in 2004 for a conference in Spain; referred to as the “Barcelona” paper) and Democratizing the International Monetary Fund and the World Bank: Governance and Accountability.
Last of two parts.
The Limits of Critique
Despite his trenchant critiques, Stiglitz runs against the limits of his Keynesian background. He assumes that neoliberal policies and market fundamentalism are the product of a specific set of institutions, uniquely prescribed by individuals espousing a specific neoliberal ideology, and that their flaws do not stem from deeper contradictions in the global economic system.
He focuses on the problems of the IMF as an internal governance issue – a lack of democracy, a lack of transparency, a “failure of governance”- without taking the bigger picture into account. Like the fact that austerity measures are objectively necessary to preserve the profits of the big banks and corporate houses while ensuring their investment returns (Harvey 2011), even if they come at the expense of millions of working class people. Or the fact that the reality of a profit-driven global economy compels rich world governments and their institutions to impose a certain set of policies on the poor nations of the South, whatever the risks to the lives and wellbeing of people in the developing world (Amin 1997, 2010; Chang 2007; Hickel 2013).
Stemming from the liberalisation of the financial sector, the South continues to lose $ 1 trillion per year through offshore capital flight – i.e., tax avoidance by transnational corporations (Global Financial Integrity 2012). This is about 10 times the size of the aid budgets of all Northern states combined (OECD 2011). It is also in addition to $ 138 billion lost through legal tax holidays (ActionAid 2013), which on its own is greater than the global aid budget. Meanwhile, the poorest nations still pay $ 600 billion dollars a year to the richest in debt service (World Bank 2014), the bulk of it on “compound interest of loans accumulated by rulers long since deposed… this alone amounts to nearly 5 times the aid budget. Using this metric, economist Charles Abugre  calculates that the net flow of aid from the West to the Global South over the period 2002 to 2007 was minus $2.8 trillion” (Hickel 2013).
These transfers of wealth from the third world to the first are reflected in the underdevelopment of the former under the guise of its opposite (Amin 2003). The economic logic of institutions like the IMF and the World Bank still demand that Southern countries orient their economies, their resources and their labour to service the needs of the world market – the world market as dominated by transnational corporations based in the West, and now increasingly China and other emerging capitalist powers (Amin 2010; Katz 2002).
The export of crops, raw materials, limited manufactures and overseas labour are a mainstay of many third world economies, alongside Free Trade Zones where transnationals enjoy the most lax environmental and labour regulations, and tax holidays and cheap labour are offered as incentives to foreign investors (Bello, et al 2004, Green 2008).
At the dawn of the new ‘green revolution’ sponsored by the World Bank and the International Monetary Fund in the 1970s, global assembly lines began to form in Southeast Asia and at the US-Mexican border. In Southeast Asia and Mexico, export manufacturing often occurred outside of the FTZs, as subcontracting arrangements were dispersed to the peasant population, who work part time, Japanese and Western countries set up offshore production companies in Southeast Asia, the Caribbean, and Latin America in order to bypass high production costs, labor initiatives, and environmental controls at home… And now the International Monetary Fund wants poor countries to improve their balance-of-payments position by liberalizing their economies, devaluing currencies, and increasing imports in proportion to exports. This has brought nothing but havoc for the poor. And international trade conventions such as the General Agreement on Tarrifs and Trade (GATT) have made the pursuit of ecologically sustainable food security increasingly more difficult…
The regional and liberalization pacts that have emerged in the past decade – the World Trade Organization (WTO), the North American Free Trade Agreement (NAFTA), the European Union (EU), Latin America’s Mercosur, and the recent negotiations of the Organization for Economic Cooperation and Development surrounding the Multilateral Agreement on Investment – are shaping the New World Order in accordance with the most ideal investment conditions for transnational corporations. The slithering tendrils of capitalism continue to creep, even if they do not find their mark. Anything hindering foreign investment – rules and regulations that protect workers and jobs, public welfare, the environment, culture, domestic businesses, and the like – are being suctioned into the feral beak of oblivion (McLaren 2000)
Free trade agreements (FTW) abound, but while advanced capitalist economies in Europe and America continue to protect their industries from competition arising from “emerging economies” like China or India, countries like the Philippines are forced to slash their tariffs, deregulate their economies and depress the wages of their workers while they compete for the attentions of international investors and lift all barriers to their profits (Chang 2007, Harvey 2005).
Recently, the Philippine government has been under significant pressure to enact charter change provisions along these lines (Africa 2014).
The problem is not that poor countries cannot manage to drag themselves up the development ladder, the problem is that they are actively prevented from doing so. Beginning in the early 1980s, Western governments and financial institutions like the World Bank and IMF changed their development policy from one that was basically Keynesian to one that remains devotedly neoliberal, requiring radical market deregulation, fiscal austerity, and privatization in developing countries as a condition of receiving aid… Robert Pollin, an economist at the University of Massachusetts, estimates that developing countries have lost roughly $480 billion in potential GDP as a result of structural adjustment. Yet Western corporations have benefitted tremendously. It has forced open vast new consumer markets; it has made it easier to access cheap labor and raw materials; it has opened up avenues for capital flight and tax avoidance; it has created a lucrative market in foreign debt; and it has facilitated a massive transfer of public resources into private hands (the World Bank alone has privatized more than $2 trillion worth of assets in developing countries) (Hickel 2013).
Oddly enough, neoliberal policies have often been carried out in the name of national interest. Political sovereignty is meaningless, however, when control over the levers of the economy are not in the hands of the people citizens vote into power. Democratic accountability is thus thrown out of the window.
The neoliberal anti-state discourse fails on its own terms (Harvey 2005). While the state has seen itself at the forefront of assault from the political right, it has gladly ceded its own power to institutions and vested interests truly unaccountable to the people. In reality the powers of the state, even the “democratic” state, remain, but are being deployed for purposes far from democratic. From governing interest rates to military might, the state is still needed to facilitate capital flows, protect profits, clear away barriers to investment (like indigenous communities in the way of a large scale mining project), privatise public assets for sale to private investors, and crack down on resistance from social movements that question the prevailing state of affairs.
While limits are imposed on democracy, capital is allowed free reign.
Institutions like the IMF and the World Bank are a necessity under the capitalist system, and will re-emerge under different names even if they are closed down temporarily, no matter how many reforms are made. They will remain secretive and undemocratic by default, regardless of their fancy websites, for any attempts at opening up their internal processes to public scrutiny, or inviting more democratic control at the top, will inevitably invite criticism and more radical changes from a public that knows these institutions do not serve their interests and never have. This is already the case in Europe, as the protests shaking the streets of Madrid and Athens nearly every day attest (Hickel and Khan 2012).
Hoping to reform these institutions, then, without challenging the economic structures that gave rise to their anti-democratic practices, will prove fruitless. Attempts at, for instance, changing the voting structures of the IMF are undeniably good, but the reforms Stiglitz suggests are impossible to properly implement without challenging the root causes of the IMF’s lack of internal democracy.
Enforcing them requires a governing body external to the IMF, or a different sort of economy altogether.
The Bretton Woods institutions reflect the reality of the international status quo (Katz 2002). The governance structures of the IMF, the WTO and the World Bank are undemocratic and hierarchical, precisely because the relationships between nation-states are hierarchical and unequal at a global scale (Amin 2010). The voting powers of the weaker states may win them a few gains here and there, but they are powerless overall due to a lack of economic clout, even when they act collectively against the United States, which is economically, politically and militarily still larger than all of them combined.
The world market is not a neutral arbiter between labour and capital, supposedly delivering the benefits of economic growth to all without discrimination, for so long as trade is unhampered and all regulations lifted and governments – especially in the third world – do not meddle in its affairs.
In reality, peripheral countries like the Philippines remain tied by a thousand strings to the advanced capitalist economies at the centre. Its industries and technologies are incapable of competing with the developed world. The present hegemony of Western nation-states was accumulated over centuries of exploitation of their colonies in today’s global South, and all attempts at economic growth in the latter are limited to financial speculation, temporary booms in peripheral industries and consumption-driven growth which can never meet the needs of the majority under the present set-up (Amin 2010, 2003; Bello, et al. 2004; Chang 2007; Farmer 2003).
While a shift from the G7 to the G24 (or G100?), as Stiglitz anticipates, is reflective of a possible shift in economic and political power from the traditional bastions of Europe and the United States to East Asia, and opens up the possibility of more “inclusive” Bretton Woods institutions, this still leaves out the reality of conflicts of interest within the developing world itself.
For a polarisation of power exists both between countries of the global North and South, and between the elites and working class masses of the third world. Political and economic elites in the subaltern economies – the dominant classes of the third world – identify more closely with their counterparts in the developed North, and align themselves to the dictates of the Washington Consensus, precisely because they gain from them (Amir 2003). Kickbacks abound in lucrative business deals between transnational firms and their local counterparts, and show up as solid gains in the stock market, regardless of their impacts on the real economy (Harvey 2011). Land is sold off to foreign investors and mining magnates, often at the expense of dispossessed farmers, indigenous communities, and all hopes of sustainable agriculture. Third world scions of political dynasties gain enormously from trade deals that favour the business interests of their relatives, as in the case of sugar and other industries in the Philippines (Bello, et al. 2004, Kasuya and Quimpo, 2010). Even where the discourse of liberalisation and privatisation is deployed as a panacea to the perceived ills of state bureaucracy and clientelism, such deals are still made with the real beneficiaries in mind.
We have reached the point where the expansion of capitalist globalisation only intensifies the polarisation between North and South – which is not a geographic distinction this time, but an illustration of the yawning gap between the classes which benefit from capitalist globalisation and the working masses of the peripheries, who make up the majority of the world’s population (Amin 2010). The uneven development of the South and the dispossession of its people are tied to the accumulating wealth of the elites of both regions, in a world where 85 individuals own more wealth than the poorest 3 billion people on the planet combined (Fuentes-Nieva 2014).
Such radical asymmetries of wealth and power are incompatible with genuine democracy and true international solidarity.
A Different Kind of Globalisation
In the end, the IMF’s bright bureaucrats will find a way of getting around whatever restrictions are imposed. True, permanent reform of the organization requires reforming its governance structure. Ultimately, the behaviour of an organization is affected by the interests of those to whom the organization is accountable. In the case of the IMF, its direct accountability to central banks and finance ministries can explain much of its poor behaviour. Today, the majority of IMF votes are in the hands of the G7, a small minority of the world’s population. This must change (Stiglitz 2003).
As Stiglitz himself points out, reforming the Bretton Woods institutions is impossible without demanding that they be radically accountable to the very people their slogans proclaim they are dedicated to serve. A reorientation of their priorities is necessary, away from facilitating the flow of corporate profits and serving the interests of dominant capitalist economies, toward offering genuine aid to the developing South.
But a mere change in leadership or even an overhaul in their governance structures will not be enough. Without changes in the broader economic and political contexts that shape globalisation as it is today, similar institutions – just as undemocratic and unaccountable – will doubtless rise to take their place, even if softened by more ethical rhetoric and better websites. Only a radical transformation in global socioeconomic structures will be enough to make a dent on the nature of the IMF, the World Bank, the WTO and similar institutions.
Since the “Battle of Seattle” at the turn of the millennium, numerous alter-globalisation movements have entered the world stage in opposition to the neoliberal globalisation model (Quinsaat 2010).
These protests are not so much against globalisation per se, as they are for a different kind of globalisation – perhaps even, as Roy (2004) put it, a globalisation of dissent.
About the Author
CJ Chanco (@CJ_Chanco) A hopeless romantic and obsessive thinker, reader, writer and long-distance runner struggling to understand a world forever torn between cynicism and hope. A former features editor at The Lasallian and an aspiring anthropologist.
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