The question of global representation and justice looms larger since 11th September. Globalisation has created new kinds of transnational audiences and interests, but no global politics. States remain the main political actors. There is little global law and there is no global police force, apart from the actions the powerful states undertake such as Kosovo and the present war on terrorism, both led by the US. The transnational organisations created after the second world war the United Nations and its agencies, the International Monetary Fund, the World Bank and the (recently restructured) World Trade Organisation are relatively weak; when they undertake large projects, they do so under the tutelage of the richest states, especially of the US.
The new global movements inaccurately called anti-globalisation groups are providing one answer to the absence of global politics by pressing what they see as popular demands and interests on the rich states, transnational companies and international financial institutions. The movements, which have been rapidly successful in their own terms, have however been largely negative for the people in the developing world they claim to speak for. Their assault on the IMF/Bank and the WTO has sought to deprive of legitimacy precisely those institutions that are the foundations of a more just global order.
These institutions were created with explicitly reformist goals. The IMF was set up as a forum for global economic co-operation. It functioned as a kind of mutual bank with member states lodging a slice of share capital with the Fund, corresponding roughly to the state's economic size. Temporary financial assistance could then be called upon when countries ran into currency or balance of payments difficulties. The World Bank started life as a mainly technical organisation advising on (and sometimes helping to fund) large infrastructure projects in poor countries.
Today, partly because of the "structural adjustment" crises of the 1980s and 1990s, the international financial institutions (IFIs) and the WTO are seen in a very different light in many parts of the world. To their credit, the global movements have drawn this to the rich world's attention and have made the misery and lack of voice of much of the world's population more evident than it would otherwise have been. They have been painting on a global canvas in ways that mainstream politicians have not.
Centre-left governments are heirs to an internationalist concern for global development which created the international institutions in the first place. Social democrats have to confront the global movements' ideas with a more coherent position of their own. If they do not, the pressures of selfish isolationism (strengthened by recession) and destructive idealism will squeeze and disorient the institutions we have, and weaken the movement to transform them.
Why did reformist western politicians become so insouciant about the activities of the international institutions? They have been focused on domestic priorities; they assumed that the job being done—say in stimulating reform in the former Soviet states—was in the wider international interest. They have also assumed that these institutions were broadly in their camp, working on social democratic policies such as combating poverty, aiding development, extending credit to the poor. But the world has moved on since the 1960s and the critique offered by the global movements—some of it shared by the old development and anti-poverty NGOs—deserves a response.
The globalisation critics come from many (often conflicting) positions. But it is possible to extract four main elements of the critique. First, the IFIs' original mandate to promote reconstruction in Europe and then development in the third world, has been corrupted. In the 1970s and 1980s, an era of high optimism for the success of IMF/Bank (and private sector) lending, tens of billions of dollars were pumped into African, Asian, Latin American and middle eastern countries. In the 1980s, African countries received, on average, six adjustment loans (running into hundreds of millions or billions of dollars) while Latin American states received five each, Asian states four each and middle eastern states three each. In the 1990s, the same or higher rates of lending went to the former Soviet states. But (as Bill Easterly shows in The Elusive Quest for Growth, MIT Press) per capita growth in developing states descended in almost exact parallel to IMF/Bank lending.
Largely because of these experiences, "structural adjustment" strategies were adopted which, in theory, made lending by the Fund and the Bank conditional on budgetary tightening, inflation fighting and deficit reducing policies in recipient countries. These strategies, reflecting a neo-liberal "Washington consensus," produced real hardships—though usually not to poor country elites. The Fund also forced borrowers to carry the full burden of restructuring in Latin America in the 1980s, in Asia and Russia in the 1990s while lenders, mainly western banks, escaped unscathed. And in several instances it has insisted on capital market liberalisation against domestic opposition. According to Joseph Stiglitz, the former chief economist at the Bank, the agenda of the Fund is "driven by the north [rich states], for the north, reflecting the north's ideology and values."
These policies have certainly brought the IFIs more deeply into political decisions, without having the authority or capacity to do politics. Fiscal and budgetary conditions were often unpopular and acceptance or rejection of IFI terms usually became a central aspect of domestic politics in recipient states. And when the debate moved on to the importance of political and legal structures in promoting growth in poor countries this implied even more direct interference in the sovereignty of recipient countries.
Second, the end of the cold war saw a sharp decrease in aid by the rich states, especially the US, whose spending on aid shrank from nearly 0.8 per cent of GDP in the early 1960s to just above 0.1 per cent in the late 1990s. This shameful drop, at a time of rapid growth in the rich world, has been partially addressed in recent years by some centre-left governments, including Britain's. But the percentage of GDP allocated to development remains below the UN recommended minimum of 0.7 per cent, in all but a handful of northern European states. Denmark boasts 1 per cent, the Netherlands 0.85 and Sweden 0.7 per cent. France spends about 0.4, Germany and Britain between 0.2 and 0.3; Italy about 0.15 per cent.
Third, rich countries have disproportionate influence on the IFIs. There are 24 executive seats at both the IMF and the Bank, with seven reserved for the main shareholder countries and the other 176 member states sharing the remaining 17 seats—with voting weights roughly in proportion to economic size. The WTO is supposed to operate by consensus but, in practice, the "quad" of the US, EU, Japan and Canada has disproportionate influence. This has led to the rush to liberalise trade in services—popular with rich countries but unpopular with poor ones—even before the rich countries have properly opened their markets to the physical products of the poor, especially textiles and agricultural products. Textile liberalisation is being phased in by 2005, but most rich countries are delaying it until the last possible moment and even then will try to claw some of it back through anti-dumping duties.
Fourth, the experience of most former Soviet states, all with IMF/Bank programmes, has been poor. With the exception of the Baltic states, economic collapse continued for years after communism. For Russia, the 1990s were a massively negative period, with a loss of 50 per cent of output, a plunge in living standards and a big increase in crime, disease and inequality. Worse happened to Ukraine. The central Asian and Caucasian states were also impoverished and several fell into civil war. All these states had IMF and World Bank programmes; in none did they seem to work. Just as during the cold war the IMF/Bank was often seen as a prop to pro-western regimes, so in the 1990s it seemed to be working for the new elites, some of which were more despotic than the elites of the late Soviet era.
These are serious issues which demand, and have received, a serious response from the IFIs. The rich states, however, have complicated the debate by generating clouds of humanitarian rhetoric at a time when their performance in terms of funding has been disappointing.
With some exceptions, the global movements have not been interested in the considered replies of the technicians of development, preferring to concentrate their fire on the failings and hypocrisies of rich states. Indeed, they have used the political failures of the rich states to batter the IFIs at a time when the latter have also been under assault from unilateralists and isolationists of the right, especially in the US.
The claim that the IFIs are closed to argument and criticism is false. The Bank in particular is plagued by self-doubt about its methods and the mixed results it has achieved since the late 1940s. The rise of the global movements has been a stimulus for further debate. In the late 1990s, urged on by development NGOs, the IMF/Bank devised the debt forgiveness plan for the poorest countries. More recently it has produced plans for new financial architectures, including a global bankruptcy court. The appointment of James Wolfensohn as Bank president in 1995 was followed by a continuing restructuring of its priorities. It sought to develop an even broader range of policies to address poverty, corruption, women's rights, transparency and corporate governance. So much so, indeed, that the most telling critique of its policies is that it has listened too much to these new critics for its own—and the developing world's—good.
Both the Fund and the Bank have, over the past 50 years, moved from a simple belief in the virtues of short-term financial relief and infrastructure funding, through an appreciation of the importance of education and training, to a realisation of the disastrous effects of macroeconomic instability, to strategies of combining policy advice with financial incentives, to an acceptance that a range of inputs besides capital—including political structures—are necessary to spur development. These realisations did not displace each other, but were layered in increasingly complex circles of theory and practice. Jessica Einhorn, a former World Bank managing director, has described in Foreign Affairs—a cumulative piling on of tasks over the decades, including issues of governance, participation by the poor and anti-corruption.
The Bank raises money from the capital markets and then lends, very long term, to poor countries; but it has been increasing the proportion of interest free loans made through the International Development Association (funded by the rich states) which now covers a quarter of its business. Einhorn calls for the Bank "to move both back to basics and into the modern era." She means a radical redefinition or restatement of the Bretton Woods aims, coupled with a more modest recognition of what it and the other institutions can do to achieve them. Another ex-Bank official, Joel Bergsman, says that the Bank should shrink its activities to those the private sector and other financial institutions cannot do, such as financing education and large infrastructure projects.
Stephen Fidler, writing in Foreign Policy, says that the comprehensive development review launched by Wolfensohn in 1999 was seen by critics as "a capitulation to the NGOs." He argues that the Bank's care to avoid disputes with its global critics results in conflict prevention measures which do little to satisfy unassuageable critics, but can do real harm to developing countries. One famous case is that of the western poverty reduction project in Qinghai, China, to which the Bank was preparing to lend. This was stopped by the Bank's own inspection panel after complaints by NGOs alleging environmental damage and harm to the local Tibetan and Mongolian people. The project went ahead, without Bank support and presumably with less care for the minorities. This was seen as a victory by the NGOs. The LSE economist Robert Wade, an expert consultant for the inspection panel, later wrote that the experience of these and other cases meant that the Bank now avoids lending to projects that might affect minority groups to avoid political conflict.
The main problems for the institutions are, in fact, not the immediate ones often raised by the activists. They are twofold: first, the simple coherence of their policies in the light of the conflicting demands on them from first and third world lobbies and, second, the nature of their political mandate to intervene.
Robert macnamara, the former Ford president turned US defence secretary turned Bank president, began 25 years of rhetorical uplift in 1973 by pledging to eradicate poverty by the end of the 20th century. It is clear that the IFIs have not abolished poverty but also clear that they have had an effect. Studies of structural adjustment programmes in the 1980s showed that 42 countries involved in them reported "substantial success." Russia has paid the IMF/Bank strategy (of budget restraint, privatisation, coherent tax codes and a remaking of the judicial system) the compliment of acceptance by almost all political opinion, although big problems remain on implementation. China, which achieved the largest growth over the past decade of any major state and has a strong sense of its interests, pursues WTO membership aggressively.
Throughout the 1990s, as the west in general and the US in particular grew spectacularly richer, large parts of the world including Africa, the former Soviet Union and many countries in Latin America, suffered falls in income which fell heaviest on the poorest. Between 1980 and 1998, the income of the least developed countries fell from one sixteenth to one eighteenth of the average GDP per capita of high income countries. The outlook for many of these countries looks bleak, although the IMF/Bank initiative to cancel some of the debt of the most heavily indebted countries, at a cost of around $30 billion (according to the Bank) will relieve some pressure.
But we should not lose sight of the fact that the number of the very poorest is actually falling. According to the United Nations Development Programme (UNDP) the number of people in low income countries has fallen from 1.1 billion to 500m in the past 25 years. (The UNDP also says that for the first time the number of people living in medium and high income countries now outstrips the number living in medium and low income countries.)
Moreover, the problems of very poor countries invariably arise from a lack of globalisation, not an excess, and from problems of domestic governance, not external oppression. In years of campaigning the global critics have not managed to disprove the claim that the free trading system is, by and large, good for rich and poor, and that the more open a poor state the more likely it is to grow rich. During the 1990s, globalising developing countries grew at an annual rate of 5 per cent per capita, while rich countries grew at 2.2 per cent and non-globalising developing countries grew at only 1.4 per cent. Developing countries have increased their share of world trade by more than one fifth since 1990. The success of many east Asian countries over the past 20 years is partly down to economic openness. Before the 2001 Doha meeting of the WTO (convening as I write) the Bank forecast that elimination of all trade tariffs and subsidies would increase global income by $2.8 trillion over ten years, half of which would go to poor countries.
The underhand deals done in and around the trading system are a reflection not of the might of the WTO but of the continuing power of the rich countries and corporations: an influence which is moderated by a rules-based body like the WTO. Philippe Legrain, a writer who served as an adviser to the WTO director general, wrote in Prospect a year ago: "It is unfortunate that development lobbyists share platforms with protectionists… For rich countries to ban developing countries' imports because they do not have labour and environmental standards as high as rich countries is to deny them any hope of development." Rich country protectionism would surely grow if the WTO were abolished.
The truth is that the developing countries have different interests from those expressed by most western-dominated global movements—though the former have been slow to take on the latter, perhaps feeling that some of the pressure may benefit them, as it sometimes does. However, they are now beginning to object to the loss of voice to unelected NGOs: this discontent was expressed in October 2000 in a speech to the Bank board by the outgoing representative for Argentina, Valeriano Garcia, who criticised "the strategic thinking of the Bank muddled by too many ad hoc initiatives."
The economist Jagdish Bhagwati has written bitterly about Seattle-style protests: "In which over-nourished workers of rich countries demonstrate against under-nourished workers of poor countries and pretend it's in the latter's interests… The unions and NGOs wear halos, whereas the old protectionist lobbies were at least seen for what they were."
The faults of the global institutions are not so much their policies. It is that they lack a mandate for their increasingly politicised job and give insufficient voice to the poorest countries. As the Oxford political scientist Ngaire Woods has written, the poor states, especially African ones, have the least say in the policies of the Fund and the Bank, sometimes not even being present at key meetings where decisions affecting them are taken. The head of the Bank and the Fund are always American or west European; both organisations are situated in Washington, and poorer countries are likely to have few citizens among the staff of both institutions.
Those who pay the piper (the largest shareholders) clearly feel they should call the tune. On the other hand, it is hard to get change which is "owned" by developing states, when the structure of the IFIs excludes these states as mature actors. The institutions and the states are presently forced to work in a system which resembles the franchise in 19th- century Britain: representation based on the notion that only property could confer responsibility.
Assumptions about liberal economies, free trade and macroeconomic stability are not the issue here: they have been shown to benefit most countries. Their reverse—North Korean or Cuban—autarchy has certainly been shown to consign states to poverty and authoritarianism. What is at issue is a louder voice for poor states in the governing structures of the Bank, IMF and other global agencies. And perhaps greater procedural clarity—for example a debt resolution procedure requiring an independent panel adjudicating on IMF decisions. The model here is the binding dispute settlement system of the WTO, which often finds against the richest countries. When the WTO replaced Gatt, this was an innovation that was far more popular with poor countries than rich.
The demands of enlightened self-interest suggest an approach to reform based on three broad platforms. First, better representation of the developing countries in the global institutions, while acknowledging the special rights of those who provide the bulk of the capital in the case of the IMF/Bank. This will not solve bitter disputes over intellectual property or the intractable problem of sovereignty infringement arising from the conditionality of aid but it may help to foster a less resentful debate about them. Second, a concerted effort is required to improve the flow of aid from the rich to the poor world and to ensure that the global institutions—including the UN—have the resources they need. According to the OECD the total spent on development aid last year was $53 billion. The figure, unadjusted for inflation, was $60 billion in 1990. It should be possible to reach a figure of $100 billion by 2015. Third, and most important, the rich states must open their markets to poor states in a more consistent way. The cost of such opening is usually borne by the poor of the rich world, the constituents of those social democratic politicians who are calling for a fairer world order. But it is social democrats who are best equipped to provide the domestic hand up for those harmed by the changes.
Politicians and electorates, especially in the rich world, must address what has hitherto been the preserve of diplomats, NGOs, multinationals and the global movements. The world, conscious of itself as a unity in a way it has never been before, is challenged to make politics truly global.
