Economic Governance in the Age of Globalization

William K. Tabb

• Publisher: Columbia University Press
• Year: 2004
• eBook ISBN: 9780231505758
• Topic: Politics & International Relations
• Subtopic: Business General
• Index: Politics & International Relations

Rapid growth, reduced poverty, and stable societies: the announced benefits of the world economy celebrated by neoliberal proponents of "the Washington consensus" have failed to materialize. What does this failure mean for future world order and the U.S. role as global hegemon? Addressing this crucial question, William Tabb argues that global economic institutions such as the World Bank and the International Monetary Fund constitute a nascent international state for which all previous models of sovereignty, accountability and equity are inadequate. Integrating economics and political science, Tabb traces the emergence of this global state from the closing days of World War II and examines its future prospects.

Even as the United States will continue to dominate the emerging structures of world governance, Tabb maintains, it will have to change the assumptions behind its championing of classical models of international free trade. A new financial architecture must encompass debt forgiveness, multilateral agreements on investment, and a more inclusive model of growth in the twenty-first century.

CHAPTER ONE

Introduction

“Four years ago, journalist Richard Swift arrived in the fields of western Ghana, where cheap cocoa is harvested to be shipped to Switzerland. The journalist carried some chocolate bars in his backpack. The native harvesters had never tasted chocolate before. They loved it.”

—Eduardo Galeano (2003)

“Without social equity, economic growth cannot be sustained. Without enlarging the real opportunities available to all citizens, the markets will work only for the elites. This means providing everyone with access to education, health care, decent work, and—as the new Brazilian president Lula has pointed out—with at least three meals a day.

—James D. Wolfensohn (2003)

A reading of globalization at the start of the twenty-first century needs to reconsider such concepts as stateness, sovereignty, governance, efficiency, and social justice. I undertake this task here within a framework combining elements of critical theory drawn from mainline political economy, Gramscian and materialist understandings of the international political economy (throughout ipe will be used for the international political economy which is “out there” and IPE to denote the academic study of the ipe) drawing on classical institutionalism and other strands of heterodox political economy. It is about the disjuncture between understandings of the world political economy among elites, social movements of global civil society, mainstream social scientists, and critical realists. The project is motivated by concerns for improved income distribution, an inclusive pattern of sustainable development, good governance, financial stability, fair treatment of less powerful countries currently discriminated against by the most powerful ones, labor and democratic rights, appropriate reform and regulation of the global financial system, increased and properly targeted foreign aid and debt relief, and a host of other goals which are widely shared.

I examine conflicting approaches to economic and financial rule making and enforcement mechanisms and at the key actors: transnational corporations, nongovernmental organizations (NGOs), and global state economic governance institutions. I also look at the literatures which have been produced in recent years concerning what we know and think we know about these issues. Where there is disagreement, I examine why they occur and persist. Throughout this undertaking we need to bear in mind that the pre-analytic vision with which IPE theorists approach their work matters. So too does the sympathy each has for the project of the hegemonic power of the post World War II era, and so the generosity or suspicion with which they approach the U.S. agenda, and the way they valiance negotiator’s rhetoric and intentions. Everyone pretty much agrees that the United States as the global hegemon exerts preponderant influence over the structuring of the accepted rules and expectations other governments bring to any conversation. The question is what are the consequences of American intentions, especially in the post-September 11 world.

What is unquestioned is American dominance. This supremacy is not only military (although it is also true that by 2004 the United States was spending amost as much on defense as the rest of the world put together and doing so at a cost of only four percent of its gross domestic product, a low figure compared to America’s post-World War II spending. The U.S. economy is larger than the next three members of the G-8—Japan, Germany, and Great Britain—put together). With a mere five percent of the world’s population the United States accounts for 43 percent of the world’s total production and half of global research and development. Because of its importance to everyone else what the United States does and what its leaders say is parsed carefully, continuously, perhaps obsessively. This reality of the United States as the 800 pound gorilla of the ipe is not central at all to a U.S.-centric IPE. U.S.-based students of globalization inevitably “see” through the lens of national identity and loyalty. Those observing events from other locations often see matters differently. They typically do not lean to appreciation of reasonableness of hegemonic policies, nor to an automatic assumption of essentially benign intentions of U.S. policymakers. What in America is seen as leadership can appear as domination or imperialism to others (who may also be overly generous in attributing their own problems to the actions of the United States).

My own view is that the United States exerts its power not all that differently than many other governments would if they were in a hegemonic position. Indeed, in many ways Americans have been more generous and responsible than any number of other governments might be if the distribution of power were rearranged in their favor to the same extent. This, however, is hardly to offer anything approaching blanket endorsement of American policies and the demands it has made on others and in its design of global state economic governance institutions. Nor, on another level, is it to accept an autonomy of the state, any state, from the sources of power emanating from the political economy. The strength of the economy and the resources at the disposal of those who control these resources influence state action in two profoundly important ways. Structurally states depend on economic actors to provide tax revenues, to contribute to the growth and stability the society enjoys, employment, and the production of goods and services. Governments must be supportive in return of those so important to the well being of the state. Instrumentally it is the case that the leadership of the state and its key technocratic policymakers is drawn from and overlaps with those who hold power and exercise managerial control in the economic sphere. There are differences within this class based on sectoral and regional locations and ideological dispositions of various kinds which may be determining. The connection between economic and political elites tends to be a close one.

Economic growth is co-constituted by the political and especially the regulatory framing of markets. The social embeddedness of rules and norms guides and constrains economic possibilities in ways theories based on pure exchange in free markets ignore. Such negotiation is never innocent of power. Contestation among politically well connected corporate interests in the richer economies, their governments, the governments of the poorer countries, NGOs, and the social justice movements of global civil society has many fronts and multiple agendas. The ideologically hegemonic position has been the neoliberal agenda (widely called the Washington Consensus). It calls for trade and financial liberalization, privatization, deregulation, openness to foreign direct investment, a competitive exchange rate, fiscal discipline, lower taxes, and smaller government (Williamson, 1990).

Neoliberalism is widely understood by even many mainstream economists and policy wonks to have failed in terms of its announced goals. It has not brought more rapid economic growth, reduced poverty, or made economies more stable. In fact over the years of neoliberal hegemony growth has slowed, poverty has increased, and economic and financial crises have plagued most countries of the world economy. The data on all of this are overwhelming. Neoliberalism has, however, succeeded as the project of the most internationalized fractions of capital. In its unannounced goal it has increased the dominance of transnational corporations, international financiers, and sectors of local elites. The admission that neoliberalism has failed in terms of its announced goals led to an Augmented Washington Consensus (Rodrik, 2002) which blames client states and not the global state economic governance institutions or transnational capital for these failures. If the countries involved can be convinced to “take ownership” the program can work, it is said. To the original Washington Consensus policymakers add “prudent” capital account opening in deference to the failures financial market liberalization produced on such a large scale in the past. It is to be up to the local governments to do a better job of carrying out the program. Central banks are told they must put in place a “proper” regulatory framework, financial standards, and enforcement capabilities. There is recognition that corporate governance matters. There need to be anti-corruption rules, even social safety nets and targeted poverty reduction strategies, as part of the conditionalities imposed by the overseers. These obvious steps were absent for the last decades during which lower income countries forced to remove the protections they had so imperfectly tried to build against foreign control and spreading instability from the fluctuations in the global economy. The corruption they point to has long been recognized as the way things work. Banks continue to arrange crony loans, currency speculation, and capital flight but the problem of such excesses now threatens faith in the system itself, and not just in the poorer countries. Enron, Worldcom, and the collusion and participation of accountants, lawyers, Wall Street analysts and investment banks, as well as high government officials in the United States, Japan, and throughout Europe are now better understood (Baker, 2002).

Global state economic governance institutions (hereafter GSEGIs, an admittedly awkward acronym), like governments and state agencies at the national and local levels, are used to channel resources through constraining and enabling regulations. GSEGIs such as the International Monetary Fund (IMF) and the World Trade Organization (WTO), and their operations raise questions for economists and theorists of democratic governance concerning what is meant or should be meant by not only efficiency on a world scale, but also global equity and the relation of both to growth and development. Discussed publicly in idealist terms, they are too often manipulated for economic gain by interests capable of influencing their decisions in the same way that other organs of governments or agencies of governance are so utilized. The question of who can influence their policies and activities, who chooses their leaders and key staff people, are political questions with economic impact. In debate over rights—property rights, human rights, labor rights, the rights of investors and so on—which rights are acknowledged and secured reflect power relations in political processes.

Among the most important governance institutions are the Bretton Woods institutions (BWIs), the IMF and the World Bank Group. The WTO and its predecessor the General Agreement on Tariffs and Trade (GATT), which for half a century filled in for the aborted International Trade Organization (ITO) is the third leg of the postwar finance and trade regimes proposed in the Bretton Woods era. There are many other GSEGIs. Some of these are associated with finance and related issues such as the Bank for International Settlements (BIS). But it is these three, the two BWIs, the Fund and the Bank, and the WTO which are of dominant importance. In the absence of world government, elements of stateness adhere to such global governance institutions. We describe them as global state economic governance institutions to convey that they are the organized form of a nascent international state which will not necessarily look like, or operate like, nation states were presumed to do under the Westphalian order (to be discussed in the next chapter). GSEGIs take on qualities of stateness overriding to some extent the sovereignty of national economies presumed even in the closing decades of the twentieth century.

GSEGIs are instrumentalities of an evolving global governance system and are projections of power by the strongest states, most especially the United States. To the extent that these countries have shaped multilateral trade, investment, and finance, negotiations of the agenda have reflected not so much an unproblematic national interests but favor their most internationalized corporations and financiers, the most dominant sectors of contemporary world capitalism. The GSEGIs are called upon to provide international collective goods which market participants are unable to provide as well, or at all, for themselves. Those forces which are most active in constructing GSEGIs have been highly selective. They choose areas which substantially impact their interests and avoid consideration of the connection of these economic and financial regimes with policy concerns for which they prefer responsibility not be taken. While realists are not surprised that GSEGIs reinforce the hegemonic practices, liberal institutionalists and constructivists stress their capacity to expand the policy arena to include concerns for market access, more aid demanded by developing economies, and such issues as the environment, and labor rights—concerns which have been central to social mobilization and mass protest. If we understand the state in terms of governance rather than simply government, we can accept both the emergence of GSEGIs as powerful norm setting frameworks and see their task as supplementing and in some areas superseding governments. They provide an alternative mechanism for rule making and consensus formation by using a soft law approach rather than the formal treaty making of classic diplomacy (as will be discussed in chapter 6).

Our focus is in areas of trade, finance, and investment regime formation, which international relations (hereafter IR) scholars have considered “low” politics as opposed to the “high” politics of war and peace; although, in the present era, such a conceptual separation may be less useful than in the past as U.S. military dominance finds new purpose. Indeed, the tradition of IR scholarship which maintains a firm distinction between the two is brought into question by International Political Economy which theorizes international politics and international economic issues within a single optic. The IPE framing allows an escape from state-centric mental maps of the world and the domination of the strict dichotomous public-private distinction. Such a frame allows the theorization of powerful supra-national actors from transnational corporations to the bond market, as well as international governance institutions and NGOs. It promises an appreciation of the importance of nonstate actors and of de-territorialized communities and economically connected spaces whose boundaries do not coincide with national jurisdictions. As GSEGIs gain greater purchase on everyday life they impact understandings of citizenship and nationalism in a host of important ways beyond the scope of this study (but see Hall, 1999; Rosenau, 1997).

As to governance, Robert Cox is not alone in seeing the particular form globalization is taking as the product of a conscious political project with its ideological justifications, including the claim of inevitability for a project knowingly undertaken by these actors. To him the term global governance

suggests control and orientation in the absence of formally legitimated coercive power. There is something that could be called a nascent global historic bloc consisting of the most powerful corporate and economic forces, their allies in government, and the variety of networks that evolve policy guidelines and propagate the ideology of globalization. States now by and large play the role of agencies of the global economy, with the task of adjusting national economic policies and practices to the perceived exigencies of global economic liberalism.

(Cox, 1999: 12)

The success of these policies has been widely questioned. For example, the IMF accepts in the findings of a technical report co-authored by its U.S.-appointed chief economist Kenneth Rogoff, that “The empirical evidence has not established a definitive proof that financial integration has enhanced growth for developing countries. Furthermore, it may be associated with higher consumption volatility,” (Prasad, et al., 2003: 58).

As Jagdish Bhagwati and Daniel Tarullo (2003: 13) wrote at that key moment, the free flow of capital “can bring panic and crashing markets and currencies, particularly in developing countries.” This recognition, widely shared as shall be shown, that liberalization could put poor countries at greater risk of crisis, has not at all stopped the United States from continuing to insist on just such policies. In 2003 the United States demanded over the opposition of Chile and Singapore that in new trade agreements between those countries and the U.S. there be the inclusion of restrictions on the use of capital controls. The evidence rehearsed in later chapters supports the benefits such controls can bring for developing countries whose currency is exposed to wide destabilizing swings. It is expected that the Bush Administration plans to use these agreements as prototypes for future negotiations. It may persist despite the evidence of the harm such an insistence can cause because it sees such freedom from controls as in the interest of U.S. financial institutions and the dollar. “American unilateralism has become a pressing global concern even when the White House purports to act in pursuit of universal values,” Bhagwati and Tarullo write, “So the use of US muscle to advance the administration’s narrow, ideologically driven aims is hardly in the interests of America, let alone the rest of the world.” It is an instance of a troubling unilateralism which is evident in the role the U.S. plays in the GSEGIs.

None of this should be terribly surprising. A hegemonic power often takes advantage of its strength to get what it wants and dresses its own interests as the general interest. Sometimes they even are. But the war on terrorism framed all issues for the Bush Administration in a single optic. Supachai Panitchpakdi, the head of the WTO, expressed a similar concern, although more diplomatically. Worried that the Bush Administration’s go-it-alone approach was threatening international trade, respect for international rules, and would lead to serious economic consequences with devastating practical impact in a world in which trade was contracting for the first time in twenty years, oil prices were worrisome, and even the cost of property insurance rose dramatically as U.S. invasion of Iraq approached, he said: “I can feel a sense of trepidation. Whatever happens, if the U.S. will maintain the way we use multilateral solutions, it will be highly appreciated” (Becker, 2003: A8). Similar worries were expressed that the world had turned some kind of corner. War making policy impacted profoundly on attitude toward economic negotiations. As the U.S. Trade Representative Robert Zoellick said, “The long-term war against terrorism has to include trade, openness and development.” “Trade is more than about economic efficiency. It’s about America’s role in the world.” (Becker and Andrews, 2003: C1) A widespread perception outside of America was that by putting these issues into the unilateralist context of the U.S. war on terrorism Zoellick sought negotiating leverage by instilling fear.

It is obvious, when one considers the establishment of international economic and financial governance regimes since the Second World War, that coming out of that great conflict the dominance by the United States had unrivaled mastery over how the postwar economy was to be structured and how the then new international institutions like the World Bank and the United Nations were to work. The way America managed its place in the world then and through the years of the Cold War is widely accepted to have been to project as the guiding principle of its democracy the elevation of law over arbitrary power onto the world stage. To Philip Stephens (2003: 15) “The deal Washington made with its allies was an honest one. They acknowledged US leadership. In return they got a say in writing the rules. The system thus legitimated US power.” This bargain, he added writing in the winter of 2003, “is disintegrating as George W. Bush prepares for war against Iraq.” The audacity of the Bush Doctrine, signally different than the pragmatic realism of his father and the Bush II White House, as well as to the liberal institutionalism of the Clinton Administration is not our topic. The impact a determined unilateralist approach by American policymakers would have on the issues with which we are concerned, international economic and financial regimes, is important however. Before the Bush II approach was tested, the world understood the choice of the United States to operate in a multilateral framework was a self-imposed restraint, one which was in the hegemon’s interest as well as that of most of the rest of the world. Opinion differs on whether the American preference for a rule of law (which to some extent surely bound it to regime rules that in specific instances could go against its own short-term interests) was the result of an American commitment to democratic ideals, a calculation that such a system allowed it to get what it wanted at lower cost by leaving others their dignity, or whether Cold War rivalry pushed it to be concerned with the hearts and minds of others more than it might otherwise have been. The dominant IPE view is that U.S. proposals are constructive, and yes, what is good for America is good for the world.

The postwar order, based on recognition of U.S. power allowed for true negotiation and sometimes significant c...

Table of contents

• Cover 
• Half title
• Title
• Copyright
• Contents 
• Chapter 1. Introduction
• Chapter 2. The Verb and the Noun
• Chapter 3. Debating Globalization
• Chapter 4. The Nature and Scope of International Political Economy
• Chapter 5. The Postwar Economic Order and Global State Economic Governance Institutions
• Chapter 6. Clubs, Soft Law and International Financial Governance
• Chapter 7. The Bretton Woods Institutions in Operation
• Chapter 8. Finance: Orthodox and Heterodox
• Chapter 9. Transnational Corporations and Trade Theory
• Chapter 10. From International Trade Organization to World Trade Organization
• Chapter 11. Market Efficiency Versus Labor Rights and Environmental Protection
• Chapter 12. Redecorating and New Architecture
• Chapter 13. The Evolving Political Economy
• References
• Index