The Problem with the Global Monetary Regime - Essay Example

THE PROBLEM WITH THE GLOBAL MONETARY REGIME IS THAT TOO MANY S ARE INVOLVED IN ITS MANAGEMENT-DISCUSSION The Problem with the Global Monetary Regime is That There are Too Many Institutions Involved in its Management- Discussion 1. Introduction According to Sperro and Jeffrey (1997,p1), “international economic regimes are rules ,norms, procedures and institutions that are intended to achieve common economic goals by constraining the behaviours of governments”. Global monetary regime is central to the international economic regime, which gives the framework for trade, investment and payments for other transactions across countries .Its main aim is to create a harmonious world based on international cooperation and national interests and thereby involving in the decision making process internationally to solve many problems and issues(Kaldor, 2001,p20). One main argument against the global monetary regime is the complexity of managing too many institutions with multiple interests, issues, rules and hierarchies that have been quite unstable, which are involved in the global monetary regime(Obrien etal,2002,p3). At the same time it is argued that in spite of the differences, there are many similarities existing among these institutions involved which help in the decision making process(Karns and Mingst,2004,p27) . In this report, this issue of managing too many institutions involved in global monetary regime is discussed in detail. In section 2, an overview of the global monetary regime is shown with reference to evolution of global monetary regime and the various actors involved in the regime. The argument of the complexity of managing too many institutions involved in the global monetary regime is discussed with the help of examples in section3. At the same time, the similarities which have facilitated the decision making process are also discussed in section4. .Section 5 concludes the report. 2. Overview Three periods can be distinguished in the evolution of global monetary regime. First is the Bretton Woods Period from 1945 to 1971, seconds is the interdependence period from 1971 to 1989 and the third is the globalization period from 1989 to the present (Hart, 2008,p5). The first period is characterized by fixed exchange rate regime together with currency convertibility, financing, exchange controls, exchange rate changes and adaptation of national policies to form a new international monetary order. This period saw the emergence of international organizations like IMF and World Bank (Hart, 2008,p8). In the second period, monetary system is characterized by floating exchange rates with central bank interventions, debt crises, petrodollar recycling etc. In the third period, global monetary system has been characterized by rising financial flows, financial crises, creation of EU, rise of Euro and the strengthening of IMF and World Bank. The main actors involved in the global monetary regime include states, Inter Governmental Organizations(IGOs),Non Governmental Organizations(NGOs), experts ,global policy networks, Multinational Corporations and private authorities(Karns and Mingst,2004,p16). IGOs are organizations consisting of at least three states as members .They have activities in many states and the members are linked together through an agreement called intergovernmental agreement. Examples of IGOs are North American Free Trade Agreement (NAFTA), OPEC, World Bank, IMF, UNO etc (Hart, 2008,p15). The IGOS are of different types, which differ considerably based on their purposes and number of members. States create IGOs and are the main actors in the decision making process. Now the main power among the states is the United States of America.NGO s are also involved in decision-making process from local to global. There are many NGOs with focus on different activities. Experts include those invited from different research institutes, universities, private industries or governmental agencies from different nations for advising on various issues. Global Policy Networks are some loose alliances of a large number of participants for a common purpose. MNCs are non-government actors aimed at conducting business transactions for profits across different countries. Private authorities are non government organization involved in decision-making process which include Hedge Funds, Moody’s Investor Service etc(Karns and Mingst,2004 p4 ). 3. Diverse Issues and Interests The above section shows that there are many actors involved in the global decision making process. Even among one group of actors, there are many categories with multiple interests. Hence managing the complexity of the actors involved has become an important issue. This has been defined as multilateral diplomacy. According to Ruggie (1993,p8) “multilateralism refers to coordinating relations among three or more states in accordance with certain principles” .Based on this definition, the participants involved in the global monetary regime need to take decisions collectively in any process(Karns and Mingst,2004,p27 ).However, Ruggie saw multilaterism as a state centric one The complexity of the multilaterism has made it different in twenty first century than at the end of Second World War. This has been mainly due to the tremendous rise in the number of participants involved in the decision making process and the diverse interests of each actor involved. For example, there have been tremendous rise in the number of participant states since 1945, which is reflected in the number of states involved in the sessions of UNO meetings. In addition to these, the tremendous rise in other types of actors and the rise in the coalitions of many states have complicated the process (Karns and Mingst, 2004p 26). The example of multilaterism centred on states can be seen as the conduct of the IMF, World Bank and the GATT in the 1980s. In those days, these organizations were dominated by states, had very little relation to civil societies within the member states and the aim was mainly to generalize a particular sets of principles (Obrien et al, 2002,p 6). There have been increased reforms of these organizations in the 1990s because of rising pressure from the members of civil societies for transparency and accountability. One main aim was to extend the geographical locations included in the decision making process and to generalize the specific principles of conduct. The example is including China in the WTO and the strengthening of the WTO dispute settlement mechanism. Another type of multilaterism based on bottom up and a participative global civil society has started to challenge the existing multilaterism in the recent years (Obrien et al, 2002,p3). It is still emerging and instead of viewing state as the main actor, it aims at expanding institutions. It aims at finding common grounds for cooperation based on social organizing and cultural diversity. A major characteristic feature of this institutional form of mltilaterism is that many participants are involved in it characterized by different and conflicting motivations and goals. There are many uncertainties related with this type of mltilaterism like ambiguous results, which can be the result of these diverse goals and interests. The main problem associated with this is that if the achievements of the actors involved in the decision making process are defined in terms of their own goals, then they are likely to have very little success only. It is argued that the multilateral diplomacy existing today can be between groups or coalitions of state actors(Karns and Mingst,2004,p26).Another major issue involved in the multilateral diplomacy is to incorporate NGOs in the global governance process(Naidoo,2005,p1). This is because for the better performance of the IGOS, permission from both government and non-government organization are needed. Due to the involvement of many players with multiple interests, rules, issues and hierarchies, which have been quite unstable, it is argued to have been very difficult to obtain a common agreements for collective actions or goals. One main issue in the global monetary regime has been the complexity involved in the management of all the institutions together. One example can be given and the conferences sponsored by the UN, which involve delegates from a large number of nations speaking in different languages as well as representing many NGO s and also many private citizens. In addition to these, concerns have also been raised about the changing nature of relationships between the IGOs themselves. For example, the relationship between the Bretton woods institutions like Wold Bank or the IM F and the UN (Paul, 1999,p1). The UN had always been critical about the structural adjustment programmes of the IMF and its sister institution the World Bank. Following the Asian financial crisis in the 1990s, the UN was not in a welcoming mood towards IMF for a more coherent policy. UNO has been following a neo Keynesian approach aimed at human welfare in contrast to the neoliberal approach followed by IMF and World Bank. UN had always been critical about the inhuman and unacceptable social effects of the policies followed by the Bretton Woods institutions (Paul, 1999,p1). Thus, it can be seen that many institutions with conflicting and diverse interests , goals ,approaches etc are involved in the global monetary regime especially in the institution based mltilaterism in the present case. Hence managing all these institutions together have become very complicated .It has become one main issue in the multilateral diplomacy now (Karns and Mingst, 2004p26). At the same time, it is also argued that there are many similarities between the institutions involved in their structures, which make the decision-making process faster (Held, et al 1999,p24). The next section examines this argument in detail. 4. Similarities between institutions One main common principle underlying the IGOs has been the one state one vote decision making due to the principle of sovereign equality accepted by the IGOs. This common principle is due to the fact that IGOs have been created mainly by the states. It was compulsory that all decisions need to be unanimous until the 20th century since the states have not been accepting the majority decision making. This is often cited as the reason for the failure of the League of Nations (Karns and Mingst, 2004,p27 ). Some other principles also have been accepted by the IGOs in decision making like the weighted votes principles for the member states based on their population or financial status. Examples can be given as the weighted voting in IMF and the World Bank based on their financial contributions or the qualified majority voting in European Council of Ministers in issues where the EU has supranational authority over the member states based on population or the qualified majority voting in the UN Security Council. Based on these common principles it is argued that the decisions taken by most of the IGOs have reached a consensus (Smith and Jonathan, 1999,p173). According to this argument, the main problem of reaching a consensus in decision making by these institutions still exist mainly because they are also influenced by many NGOs ,MNCs etch which have numerous conflicting goals . The experience from recent global financial crisis illustrates this point. It is argued that the main factors needed of consensus making in the decision making process are leadership and action strategies. Leadership can be small or formal or issues or negotiating characteristics. The action strategies can be economic or military power called hard power or ability to attract others through the personal attributes etc (Karns and Mingst, 2004,p31). The leadership can be exerted by any involving institutions like states, NGOs, experts etc. It can be of different types. Some of the various forms can be the ability to win coalition to form an agreement or negotiating skill for a treaty, the willingness of a government to taka an initiative, the initiative by a diplomat for getting a consensus etc. Example can be cited as the leadership shown by Mr. Kofi Annan, the secretary General of UNO in proposing the Global Compact to meet the challenges of economic globalization (Karns and Mingst, 2004,p28). The action strategies can be of two types .They are called hard power and soft power. In general, power can hence be defined as a kind of ability to influence or control others to make them what we want based on all these definitions. This influence is obtained either through inducement, which is defined as hard power or through attracting others, or shaping others preferences, which is defined as soft power. The concept of soft power has its origin in the late 1980s by Joseph Nye Jr. Soft power is defined as the ability to attract and persuade others thereby shaping their preferences and making them to do what you want. Hard power is the ability to make others what you want through inducement (Nye, 1990,p154). Hard power is often associated with military and economic strength while soft power is associated with the attractiveness of culture, institutions and information technologies (Windsor, 2000,p1). Though economic strength is associated to hard power, it can be argued that economic wealth can also be used to attract others to get desired outcomes. Hence, it can be linked to soft power too. On the one hand, it is argued that in many cases soft power works rather than hard power since it helps to get the desired outcomes without threats or force (Nye, 2004,p2). Rather, it makes others to do what we want through co opting them .On the other hand, critics argue that imitation or attraction does not always necessarily lead to desirable outcomes(Cooper,2004,p168) .Hence according to them, soft power need not work always and hard power is the best method to get the desirable outcomes. The debate remains unsettled. Examples of hard power can be given as states like US in alliance with Britain invading Iraq through military and other bases. Studies show that the main intention of invading Iraq was to get dominance over the oil in Iraq and to dominate the Gulf region rich in oil (Global Policy Forum, 200,p1). The justifications of the use of hard power in Iraq include the possession of mass destruction weapons by Iraq and the need for transformative politics in Iraq due to the rapidly growing terrorism under the existing government there(Global policy forum,2009,p2). Many Iraqis were held without any charge or trial and reconstruction programs to support the country damaged by war resulted in massive corruption and fraud .Moreover, the conflict has resulted in erosion of Iraq’s cultural heritage (Global Policy Forum, 2009,p2). However, the original intention of US government was the withdrawal of their forces after getting their work done. In spite of the public opinion in US that the forces need to remain in Iraq to build up democracy and new society, it was not possible for the forces. This is mainly due to the growing public resistance from Iraq . It was not possible to influence the Iraq public through hard power. The US armed forces failed to cope up with the Iraqi resistance .Moreover; the mission imposed high costs on US economy like heavy impact on the federal deficit of US and increased opposition from the public. The pressure for withdrawal of US armed forces has started increasing (Global Policy forum, 2009,p2). Example for soft power include the policy of US in Afghanistan towards maintaining national security and law and order and thus establishing power in the region to a great extent (Katzman, 2009,p3). Many foreign leaders have been attracted towards the American political ideals of democracy and human rights. Hence, it was easier for America to obtain the use of bases in authoritarian Uzbekistan for operations in Afghanistan. Since the invasion of Soviet Union to Afghanistan in 1979, the nation has been mered in conflict and terrorism under Taliban The nation has received considerable help from US to get stabilized in the through foreign aid and other assistance for around 22 years. Further, with the help of US led war against terrorism, the present government has been set up in the country. This is a clear example of the soft power gained by US. At the same time, some policy makers feel the need to send armed forces to Afghanistan like the operation held in Iraq in view of the deteriorating situation again in the nation in 2008.Their viewpoint is that the violence in Afghanistan can be completely stopped only by hard power (Cato Institute, 2009,p6). How far this will be successful remains doubtful. The lessons from the Soviet invasion in Afghanistan in 1979 shows that hard power results in more violence and corruption in the nation. The Afghanistan does not have a strong government authority and the public there has been notorious for their strong resistance to the invasion of outsiders as is evident from the Soviet invasion. Hence, it can be argued that soft power works well than hard power in the nation. 5. Conclusion In this report, the issue of managing the complications of too many institutions involved in the global monetary regime has been discussed. On the one hand, it is argued that there are whole lot of institutions like IGOs, NGOs, MNCs, diplomats and the private governing bodies involved in the multilateral diplomacy associated with global monetary regime. All these have been characterized by multiple and conflicting goals, interests and hierarchies .Hence it is very complicated process to manage all these institutions together in achieving a consensus in the global decision making process. On the other hand, it is also argued that there have been many similarities in the structures of these institutions that have been helpful in arriving at a consensus. However, the recent experience of global financial crisis supports the first argument. Hence, it is very essential to reach a consensus in global decision making due to the complexities in the management of these institutions. Some major factors like leadership and action strategies needed for achieving the consensus in decision-making are discussed in detail. Many illustrative examples are shown to demonstrate these strategies. These factors can be seen as the best ones to be implemented in the decision making process of many global problems. References Cato Institute (2009): “Cato Handbook for Policy Makers”, Cato Institte, 7th edition, http://www.cato.org/pubs/handbook/hb111/hb111-51.pdf. Cooper R (2004) “ Hard Power, Soft Power and the goals of Diplomacy” In: David Held/Mathias Koenig-Archibugi (eds), American Power in the 21st Century, 2004, pp. 167-180. Global Policy Forum (2009): “Iraq Conflict”, http://www.globalpolicy.org/iraq.html(online), Accessed December 21, 2009. Hart J (2008): “Globalization and Global Governance in the 21st Century”,Note De Recherché Working Paper 27. Held, D. and McGrew, A., Goldblatt, D. and Perraton, J. (1999):”Global Transformations: Politics, Economics and Culture” , Cambridge: Polity Press. Kaldor, M (2001): “Global Civil Society: An Answer to War”, Cambridge: Polity Press. Karns MP and KA Mingst (2004): “International Organizations: The Politics and Processes of Global Governance”, Boulder: Lynne Rienner Publishers. Katzman K (2009): “Afghanistan: Post-Taliban Governance, Security, and U.S. Policy”, Congressional Research Service, http://www.fas.org/sgp/crs/row/RL30588.pdf. Naidoo K(2005): “Should Civil Society Engage With Governing Institutions?”(online), http://www.globalpolicy.org/component/content/article/177/31546.html, Accessed December 31 2009. Nye JS (1990) : “ Soft Power”, Foreign Policy, No. 80, Twentieth Anniversary (Autumn, 1990), pp. 153-171. Nye JS(2004): “The Benefits of Soft Power”, Harvard Bsiness School, Working Knolwedge for business leaders, http://hbswk.hbs.edu/archive/4290.html, 8/2/2004. O’Brien R, AM Goetz, JA Scholte and M Williams (2002): “Contesting Global Governance: Multilateral Economic Institutions and Global Social Movements”, Cambridge: Cambridge university Press. Paul J(1999): “UN and the Bretton Woods Institutions: Is More "Coherence" Needed?”(online) , http://www.globalpolicy.org/social-and-economic-policy/the-three-sisters-and-other-institutions/global-governance-and-the-three-sisters-1-11/43227.html, Accessed December 28 2009. Ruggie J G(1993): “Multilaterism Matters”, New York :Columbia university Press. Smith JG and M Jonathan eds(1999): “Global instability: The political economy of world economic governance” . London : Routledge, Sperro J E and J A Hart(1997): “The Politics of International Economic Relations”, Boston, MA : Wadsworth Cengage Learning. Windsor S BA(2000): “Hard Power, soft power reconsidered”, Canadian Military Journal, Autumn 2000, http://www.journal.dnd.ca/vo1/no3/doc/50-56-eng.pdf. Read More