Postwar World --America first
In the second of our series on global institutions, we see how the Iraq conflict accelerated the crisis in the IMF, the World Bank and the WTO
Larry Elliott Wednesday May 21, 2003 The Guardian
Last autumn, Gordon Brown and his fellow finance ministers told the International Monetary Fund to draw up a plan that would give bankruptcy protection to countries. The idea was to give states the same rights as companies if they went belly-up, avoiding the expensive bail-outs that have accompanied the big financial crises of the past decade.
The IMF was given six months to come up with a blueprint, but when it reported back last month the idea was dead in the water. Billions of dollars from the bail-outs ended up in the coffers of the big finance houses of New York and George Bush was told not to meddle with welfare for Wall Street. The message was understood: the US used its voting power at the IMF to strangle the bankruptcy code at birth.
So much, so familiar. The US has wielded clout at the IMF and its sister organisation, the World Bank, since they were created at the Bretton Woods conference in 1944. Add in the World Trade Organisation, seen by its critics as the epitome ofUS corporate capitalism and you have the unholy trinity of globalisation.
The reality is somewhat more complex than this caricature would suggest. There is indeed a crisis looming in the global economic institutions but the problem is less that the Bush administration is seeking to carpet bomb the World Bank, the IMF and the WTO with neo-liberal ideas - rather that the US shows signs of giving up on multilateralism in favour of cutting bilateral deals with willing (and weaker) partners.
First, some background. The Bretton Woods institutions were the economic arm of the new world order designed to ensure there was no repetition of the Great Depression. Collective action at the economic level was seen as just as important as collective action in the political sphere. But over the years, the IMF changed. Set up to combat global market failure, it saw free markets as the solution to every problem in every country, every time. The IMF (and the World Bank) reflected the economic orthodoxy, championing privatisation, liberalisation and tough anti-inflation strategies when they became fashionable in the west.
Europe has more votes than the US, but has rarely dissented from Washington's world view. To complete the picture of a rich-country stitch-up, a European was always appointed to head the IMF, while the US picked the president of the World Bank.
The WTO is a different beast. Created in 1995, it has two safeguards to protect the interests of smaller countries: a one-member, one-vote decision-making structure and an arbitration system under which countries such as Costa Rica, Venezuela and Chile have been able to force the US to change its trade practices or pay sanctions in compensation. Bill Clinton saw this as a price worth paying for opening up global trade to American companies.
If anything, US control-freakery was more in evidence under Clinton than it has been under his successor, because Bush is more of a neo-conservative. In the late 1990s, Larry Summers, Clinton's treasury secretary, was in day-to-day contact with the IMF, letting it know what the administration wanted, and arranged for Joseph Stiglitz to be ousted as the World Bank's chief economist after he criticised the US treasury and the IMF's handling of financial crises.
Bush, by contrast, has pursued much more of an overt America-first policy, using the multilateral system only when it suits the administration. US aid is being channelled into poor countries through the Millennium Challenge Account. The money comes with strings attached: to liberalise service sectors and accept US intellectual property laws. Similarly, the White House does not support the World Bank's fast-track initiative under which rich countries would guarantee the resources to help developing countries implement improvements in education.
In trade policy, the US has been following a twin-tracked strategy, putting forward ambitious proposals for liberalisation at the WTO, but also cutting bilateral deals with Singapore and Chile that provide more favourable terms for US firms than could be negotiated multilaterally.
Although many in the US strongly oppose the neo-conservative agenda, there are two problems for those seeking change. The first is that the IMF, the World Bank and the WTO are largely friendless bodies. Under its president, James Wolfensohn, the Bank has gone the furthest in reaching out to its critics, but those on the free-market right who see the Bretton Woods institutions as expensive, statist bureaucracies are mirrored by those on the left who view them as agents of neo-liberal oppression. "The truth is that you can't defend what these institutions currently are", says Kevin Watkins of Oxfam, "but they were part of a Keynesian political project, and it is up to the left to make them into something better."
Something better would include an open and meritocratic system for the top jobs at the World Bank, IMF and WTO, rather than the unseemly horse-trading that currently takes place. It would include stopping the IMF and the Bank colonising the territory of other UN organisations. It would involve the Bretton Woods recognising that in a deflationary world there is a need to return to their original pro-growth mandate. And it would involve the other big shareholders - the Europeans - acting in concert to put pressure on Washington.
Alex Wilkes, who runs the Bretton Woods project, a watchdog body set up by aid agencies to monitor the IMF and the World Bank, says there are few signs of this happening. There is too much grandstanding, he says, too much of a tendency to take up symbolic positions.
Watkins of Oxfam says the one arena where the EU flexes its muscles is the WTO, but only to put European corporate demands on the global agenda. Meanwhile, he believes the US is marginalising and downgrading the Bretton Woods institutions just as it is the UN. "This is a critical juncture. Iraq is accelerating the demise of multilateralism."