Role of Global Economic Organizations - Essay Example

The Role of Global Economic Organizations Introduction Globalization, which can cursorily be described as a deepening of economic ties, has been actively pursued for decades in the areas of trade and finance. International organizations such as the IMF, WB and WTO were created to reduce economic inequalities among countries, but were criticized for contributing more to these inequalities by virtue of their issuances. This paper seeks to determine to what extent these institutions interfere with domestic policy and regulation. The era of globalization The eighties and nineties saw the emerging globalization trend both as imperative and intrusion. The functions of the IMF, WB and WTO have expanded in ways unforeseen to eventually affect a wider than ever range of policies and programmes. Necessarily, the international organizations exerted influences over national jurisdictions, which generally fell into two categories. The first is in the form of expansions in broader and deeper conditions applied to borrowing members, including each nation’s domestic and municipal governance, and the policy-setting framework of their economic institutions. The second has to do with the set of commitments binding upon the member states upon establishment of the World Trade Organization in 1995, extending further into other areas traditionally governed by local legislation (Woods & Narlikar, 2001). Financial intrusions. The first kind of interference was intensified during the 1990s upon the occurrences of the regional financial crises during the 1990s, prompting the industrialized and powerful members of the IMF and World Bank to call for “forceful, far reaching structural reforms” and correct the perceived weaknesses in the domestic financial systems in the member countries – referring, in retrospect, to the weaker member nations of the IMF and World Bank. Kapur (2001) determined that the international financial institutions’ (IFI’s) “performance criteria” which formed the condition for loans, for a sample of 25 countries, rose from some 6 to 10 in the 1980s, to 26 measures in the 1990s. The number of programme objectives likewise increased, requiring countries to mobilise, redefine, strengthen or upgrade an expanding range of government processes (Wood & Narlikar, 2001). Many have protested that the level of conditionality being imposed by the IFIs was never intended in their original mandates, which in al aspects gave deference to the absolute sovereignty of states within their jurisdictions. In the late nineties, the conditionality and policy-based lending expanded from what used to be merely macroeconomic indicators, to what eventually included good governance, the rule of law, judicial reform, corruption, and corporate governance, areas never before contemplated for intrusion (Wood & Narlikar, 2001). Trade intrusions. The World Trade Organization was established in January 1995, and took over the function of the General Agreement on Trade and Tariffs (GATT), although in many ways its powers transcended its predecessor’s. The WTO was a single undertaking, and member countries were required to bind themselves to a rule-based system from which withdrawal was extremely difficult. A country that violates a rule is subject to WTO ruling that can legitimise retaliation against that member. The substance of the rules were also more and more profoundly invasive into member state’s domestic regulatory regimes, and on matters of ethics and consumers’ choice (Wood & Narlikar, 2001). The fading influence of the global economic governance regime The globalization trend grew steadily over the decades leading well into the nineties; however, the trend seems to have reached a plateau of late. The increasing strength and importance of the EU’s single market regime has caused a commensurate response on the part of other powers in particular the United States. The emergence of bilateral and regional types of regulation have all but superseded the international agreements and regulatory frameworks arrived at under the IMF, WTO, World Bank, and other such institutions.One school of thought sees the global economic institutions under stress, with more and more countries undermining the WTO by implementing preferential trade agreements, and controls imposed by the IMF in finance have been largely ignored for a decade. It took a crisis the magnitude of what had been experienced in 2008-2010 for the IMF to again gain significance (Dieter, 2009). The cause may be traced to policies implemented by the transatlantic economic powers. The United States and EU have assumed policies that tend towards their advantage and in effect weakening the influence of the global institutions. To date, there are 400 bilateral trade agreements and several customs unions given recognition by the WTO, whereas just a few years ago countries used to avoid such agreements in support of the multilateral regime. The inequality among nations There is a direct divergence in views between Dieter on the one hand, and Wood and Narlikar on the other. Although the studies are some eight years apart, the differences in perception could not merely be attributed to the lapse of time, as the developments of eight years is not sufficient to account for a complete inversion of the power of the IFIs and the WTO. The differences may be justified, however, by an examination of the countries affected by the issuances and in what manner they are influenced. The invasiveness of the mandates of the IFIs and the WTO into domestic regulatory regimes appears to be dependent upon the economic development of the country whose sovereignty is being intruded upon. Dutt and Mukhopadhyay (2009) conducted an econometric study to determine the relative degree to which these institutions have achieved their mandates, that is, to reduce the economic inequality existing among and between nations. It proceeded from the theory of Myrdal (1957). Myrdal distinguished that growth in rich countries have effects that both support and prevented growth in poor countries. Effects that enhanced growth were called spread effects, while those that impeded them were called backwash effects. Myrdal’s theory posited that backwash effects were stronger than spread effects in the absence of a world state. The Dutt and Mukhopadhyay study empirically found that the expansion of trade through the promotion of liberal policies, as the WTO espouses, and the growth of international capital flows as facilitated by the IFIs appear to contribute to increasing inequality among nations. As a result, rich nations become richer, and poor nations become poorer, thereby exacerbating the condition the international institutions were meant to alleviate. Conclusion The degree to which the international non-governmental institutions challenge the state’s ability to shape its economic and social policies depends almost entirely on the degree to which the nation is economically developed. Countries that wield wealth and economic power are generally unaffected by the IMF, WB and WTO pronouncements; if ever, these countries are able to exercise a great amount of influence over the directions the IFIs and WTO are taking. On the other hand, poorer countries which borrow from the IMF and WB are of course subject to mandatory compliance with policies contrary to its own, and in the WTO the poor nation members are forced to open up as markets to goods from the rich countries, who on the other hand freely ignore WTO guidelines and freely enter into bilateral trade agreements. Clearly, the IMF, WB and WTO existence favour the wealthy, developed countries against the poor nations. In short, the institutions are influenced more by the economic powers than the reverse, and the policies thus formulated are imposed upon the poorer nations, thus increasing the gap between. References Agnew, John A. “Unholy Trinity: The IMF, World Bank and WTO.” Annals of the Association of American Geographers, Sep 2005, Vol. 95 Issue 3, p702-704 Aaronson, Susan Ariel. “Is China Killing The WTO?” International Economy, Winter 2010, Vol. 24 Issue 1, p40-67 Dieter, Heribert . “The Decline of Global Economic Governance and the Role of the Transatlantic Powers.” Business & Politics, 2009, Vol. 11 Issue 3, p1-23 Dutt, Amitava Krishna; Mukhopadhyay, Kajal. “International institutions, globalization and the inequality among nations”. 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