simon.fiala@seznam.

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K & M Chapter 9: Promoting Human Development

In: Margaret P. Karns and Karen A. Mingst (Eds.). International organizations: the politics and processes of global governance/ 2nd ed. Pp. 387 - 446.

Notes:
--- week 9 -- Case study: Economic globalization in Africa o Africa experienced a huge progress in alleviating poverty (50% 26% of popul.) o Aid, Millennium Development Goals o Economic growth: 1997 2002 4.1%, since 2003 over 6% o Much of African debt forgiven, FDI from Asia o $53bn in private capital investment (of $6,4tn) o The amount of FDI surpassed foreign aid o African Union taking lead, developmental initiatives from the inside NEPAD New Partnership for Africas development the first substantial self-help plan, initiated by the G8 o The 2008 Economic crisis: Africa less involved in the global economy, but fragile An evolving global economy: We live in a very different world today than in the 1945 o 1945 50 sovereign states, colonies; competing modes of governance connected to ideologies; tariffs, barriers to trade; mercantilism, statist economic management; underdeveloped IO, missing mechanisms of support and cooperation o 2010s 192 sovereign states; complex interdependence, global markets; influential TNAs; liberal market capitalism unchallenged; IOs promoting peace and development o Big challenge: benefits of global development distributed unequally The globalization of liberal economic norms o Liberal economic norms Going back to Adam Smith: self-interested individuals generating market through their composite behaviour, competition ensures regulation of prices, individual consume on markets and enhance their wellbeing; government provides security and stability At the intl level: unhindered flow of capital, development for all, interdependence guarantees peace o But: Unequal distribution of gains Difficulties in construction of liberal markets; masses of losers States failing at designing foundations for development o Bretton Woods institutions: Washington consensus and beyond WB: integration of war-damaged economies; provision of capital IMF: short-term loans to compensate for balance shortages GATT-cum-WTO: facilitation of growth through establishment of trading regimes with low barriers Washington Consensus Liberal economic ideology originating in the 1990s

simon.fiala@seznam.cz Cornerstones: o Growth through public expenditure education, health, infrastr. o Fiscal discipline; privatization; small state o Liberalization of trade and FDI

MNCs the vanguard of the liberal world order 392 Spread technologies, open markets, create jobs, provide capital, fuel industrialization Facilitate globalization through internationalizing production and consumption [See Davidson for extensive discussion] o Critics of liberal economic norms UN ECLA (Economic Commission for Latin America) in the 50s: Latecomers will be forever mired in dependency UNCTAD + NIEO (1960s + 1970s) Group 77 G77 challenges the liberal order Declaration of the Establishment of a New International Economic Order + Charter of Economic Rights and Duties of States (1974) 1975: confrontation of the north and the south Changes sought by the G77 Intl trade stabilization of prices of vital export items Greater authority over resource exploitation in the developing countries Improved means of technology transfer Increased foreign aid + less strings attached Generalized System of Preferences (GSP) applied in GATT o Half successful (only in terms of prices stabilization really) Debt relief Restructuring of intl financial inst. realignment of voting shares o Half successful minor realignments: increased share for China, Mexico, ROK, Turkey o BRICs + BRICSAM call for more changes Liberal status quo persisted, UNCTAD pacified Statist mercantilists Insistence on state sovereignty; state-building National self-sufficiency, product substitution, tariffs as vital tools of economic policy E.g. Taiwan, Park Chung-Hees Korea Growth with human face Adjustment of criteria: not just growth, but also happiness, mortality, life expectancy, equality, education, environmental standards State security security of individuals Pieces of global economic governance o Development and finance: The WB and IMF Dedicated to reducing barriers in trade to enhance development The World Bank 2

simon.fiala@seznam.cz Primary task: to facilitate restructuralization in the post-war Europe o Financed largely by the US through the ERP 50s: proposing major development projects, funding through loans o Complement to private capital: funding key projects that private banks would not be interested in (education, infrastructure, government restructuring) Subsidiary groups o IFC (the International Finance Corporation) Loans to promote growth of private enterprises in developing countries (1-100m, up to 20% of est. costs) o MIGA (the Multilateral Investment Guarantee Agency) Insurance of investments against losses stemming from expropriation, civil war, etc. o IDA (International Development Association) No-interest soft loans to 80 very poor countries $182m of cumulative lending a very large body Countries lose eligibility as they mature ($1000 GDP PP) Activities of the WB often combined with multilateral aid and the assistance of the non-gov. and private sector Shifts in strategies o 1950s, 60s: large infrastructure projects o 1970s: basic needs housing, education, healthcare o 1980s: private sector involvement; support of marginalized populations and the environment o 1990s: good governance o Trends Shift towards: private sector as the bearer of growth good governance as the precondition for growth; increasingly addresses political issues The International Monetary Fund Originally established to maintain short-term loans to help countries unable to balance the books Expanded its scope to balance shocks (conflicts, disasters, shortages), help to consolidate debt Maintains stability of currencies and its convertibility Structural adjustment programs: o helping states with chronic indebtedness and inability to cover expenditures to restructure bailouts + assistance o inflation regulating measures o proposing economic reforms; designing trade liberalization; reforming government surveillance and consulting crisis anticipation Economic support

simon.fiala@seznam.cz played a large role in the 1990s transition of Eastern European states later supported the countries during their financial crises Russia received $11bn o Active in the 1997-98 AFC Indonesia $36bn, ROK $58bn, Thailand $17bn Imposed liberal economic solutions Public backslash Misjudgement, especially Indonesia perished Criticism o Lack of transparency in negotiation o Misjudgement in imposing liberal economic solutions despite their inapplicability o Excessive mingling with economic processes IMF and WB and debt in poor countries HIPC Heavily Indebted Poor Countries Initiative Providing 41 countries unable to manage their debts opportunity to reschedule conditions or cancel debt MDRI Multilateral Debt Relief Initiative (2005) Initiated by the G8 Debt cancelled for 14 very poor countries Collaboration with NGOs 1990s pressure on the institutions to open up and become accountable In 1990 NGOs involved in 20% of projects. In 2007 70%. Monitoring activities, whistle-blowing, consultation, cooperative execution of projects WB more open than the IMF Criticism of the Bretton Woods institutions Accused of being a tool of great powers Because of its weighted system of voting The institutions refused funding of the enemies of the USA during the CW Technocratic rationality Clubby elitist culture Concerns over effectiveness of policies and functions Calls for new architecture of global economic governance The UNs approach to economic development Normative function GA providing general direction and supervision for economic activities o E.g. defining sustainable development Operational function Creating a series of regional commissions to decentralize planning and programs o 5 regional commissions producing information on possibilities of stimulating growth in their respective areas 4 o

simon.fiala@seznam.cz Making a commitment to technical assistance and training programs o people, skills and technologies o grants, not loans UN Development Programme (UNDP) Est. 1965 o Less significant than Bretton W. institutions, declining funds The UN important in: o Setting norms regarding dimensions of sustainable development o Setting standards for statistical measurement, disseminating info. Partnerships and the Millennium Dev. Goals Private sector recognizes that poverty and underdevelopment is bad for business MDG 409 o Goals: Eradicate extreme poverty and hunger Achieve universal primary education Promote gender equality Reduce child mortality Improve maternal health Combat HIV, malaria, other diseases Ensure environmental sustainability Develop global partnership for development Bilateral Aid OECD Development Assistance Committee (DAC) Record 107bn redistributed Bilateral aid often connected to political considerations, strategic concessions often required, which decreases the value of aid

--- week 11 -- Trade: From GATT to WTO o How does WTO relate to human development? Trade is a large factor in global wealth o Central principles of WTO Non-discrimination Most-favoured-nation treatment/national treatment: articles shall not be discriminated according to their country of origin Reciprocity changes in policies are equivalent, protection through tariffs only (quota not possible) Transparency trade regulations must be analysed by countries and published Safety valves protection against sudden drops in prices/protection of key sectors (security, health) from shortages Enforcement of obligations disputes settled through WTO o GATT Not a formal organization rather a forum Decisions adopted bilaterally, then multilateralized

simon.fiala@seznam.cz 1960s-1970s GATT concerned with reducing trade barriers (mainly tariffs and subsidies) The Tokyo round: better treatment for LDC; large leap forward in elimination of subsidies and rules creating non-tariff barriers th The 8 round of Uruguay talks: the conception of the WTO Very comprehensive treatment regarding various articles, services, intellectual property rights, agriculture and textiles + another reduction of tariffs (39% on average) WTO - 1995 Formal organization Embraced GATT + comprehensive legal framework, TRIPs and GATS Governance innovations Ministerial Conference composed of government members (trade ministers or equal); meets once in 2yrs Equal voting system - One member one vote o Unlike the IMF or WB o Decision-making done by consensus; excl. non-present and abstaining representatives o But relative power matters Strong states have easier access to dispute settlement mechanism Strong states may go forum shopping Weak states may be unable to enforce sanctions States create networks (eg. G20) Small secretariat (in Geneva) o Limited powers the WTOs agency rests with member states, strong secretariat would be perceived illegitimate in such a political issues such as intl trade is o Director-General rather a broker Trade Policy Review Mechanism (TPRM) o Purpose: to promote understanding of the provisions of the EA among members o Assesses activities of the members and the WTO itself with regard to intl trade Dispute Settlement Unit o Dispute Settlement Body o Appellate Body An organ composed of 7 members; decision delivered within 60 90 days Its decisions have to be approved by DSB o Commonly used; most often EU/US against somebody or each other o Helped to settle a US/EU dispute about hormonally enhanced beef and Corporation exporter tax WTO policy areas Trade-Related Aspects of Intellectual Property Rights 6

simon.fiala@seznam.cz Designed to protect intellectual property Supported by powerful MNCs interested in harmonisation and raising of standards Cooperation with WIPO o WIPO lacks enforcement system, so the relevant stakeholders pursued inclusion of intellectual property protection into the WTO Especially heated discussion in terms of medical patents Trade in services (GATS) o Expanding the global trade system The Doha rounds failed over the perception of unfairness Contentious issue of trade barriers in agriculture the global North failed to produce substantial concessions Not much economic benefit was lost, but it set the consolidation of the world trading regime back Chinese accession (2001) Complex sheer size of economy, still in the midst of transition China had to open banking, telecommunications and other sectors Inflow of FDI China had to develop a complex network of institutions to facilitate the transition to the WTO trading regime China still struggles with maintaining the conditions, particularly in the intellectual rights are a problem Vietnams accession (2007) Relatively comprehensive adoption of the conditions Drastic and rapid reduction of tariffs and other barriers to trade Made Vietnam economically vulnerable in the short run, hopefully stronger in the long run Russian disinterest Russia negotiated accession for 16 years When confronted with threats regarding the war with Georgia (2009) Russia stated that it no longer seeks membership o Criticism of the WTO Seen as the epitome of economic globalization Usurping state sovereignty, domestic interests, favouring MNCs Anti-globalization NGOs critique of lack of transparency Undermining the application of labour and environmental standards o The WTO, along with the WB and IMF remains a cornerstone of the world liberal order Macroeconomic policy coordination: the role of the G7 o G7 Italy, France, UK, Germany, US, Japan, Canada (+ Russia) o Self-appointed leaders; the club of the rich o Began in 1975 initiated by a French president Ad-hoc summits, later institutionalized Expanded into ministerial meetings, very intensive cooperation o Role of the G7 7

simon.fiala@seznam.cz Economic vision-making Addressing crises Proposing remedies for the worlds problems Joblessness, consequences of globalization, transnational crime and terrorism, financial panic, debt relief, world poverty The G7 proved to be ill-disposed to handle the 2008 FC, gradually being replaced by G20 Need to consult emerging players, government and non-gov. o Expert groups Financial Stability Forum Response to the 1997 AFC Composed of representatives of the WB, IMF, international banks, central banks, the Bank of International Settlements Purpose: disseminating the best practices worldwide = strengthening and installing Western international financial codes and standards globally Financial codes governing the practices of the OECD, the International Accounting Standards Board, banking supervision (e.g. the Basel committee), the Financial Action Task Force Functional regimes in transportation o Lubricate the global trading regime o International shipping and air transport 95% of the articles being shipped (2/3rds in price) o Shipping Most important norms considering shipping date to the 19c. Freedom of the high seas Innocent passage through territorial waters The International Maritime Organization (IMO) A UN specialized agency designed to facilitate technical cooperation in shipping Committees approve technical standards (E.g. pollution, safety, ) The International Maritime Bureau (IMB) Private organization facilitating exchange of information between governments and shipping companies o Air transport Countries give consent to usage of airspace The International Civil Aviation Organization (ICAO) A UN agency (1945) The International Association of Transport Airlines (IATA) Created by airlines (1945) The US plays a hegemonic role in setting aviation standards Together create regime which contribute to reduction of barriers in international transfer of persons and cargo Intergovernmental resource cartels o OPEC 8

simon.fiala@seznam.cz Founded by Iran, Iraq, Kuwait, Saudi Arabia, Venezuela Controls estimated 2/3 of worlds oil Original purpose: to regulate the workings of oil companies in their territories, stabilization of prices Political use of the monopoly to pressure other governments (e.g. punishing support for Israel) Challenge to the liberal world order (particularly from the NIEO) Undermined by the non-participation of Russia Other cartels proved to be far less successful as there always are substitutes, which leads price elasticity Private governance Self-regulating mechanisms Various motivations (e.g. fear of government regulation, pressure from shareholders, ethical considerations) Rating agencies Production cartels and alliances (e.g. diamonds)

--- week 13 -- The regionalization of economic governance o Proliferation of regional pieces of governance NAFTA AFTA (ASEAN Free Trade A.) The EU APEC, Mercosur o Boost in preferential trade agreements as the Doha rounds came to a stall Is it a stepping stone or a stumbling block to global trade arrangements? Reduce complexity of negotiations, enhance competitiveness for selected domestic industries, liberalize (even though bilaterally) But also allows stronger actors to force-open markets for their goods and diminish will for maintaining freer global trade o The EUs single market 1958 1968 attempt to cut down tariffs and dismantle import restrictions; establishing common external tariffs and agriculture policy (among the initial 6 members) 1970s 1980s enlargement of membership, key institutional changes Single market coming to existence with the Single European Act An amendment to the Treaty of Rome Free movement of goods, capital and persons (although some restrictions initially placed on Eastern Europe) Difficult process: removing barriers and harmonizing trade Remaining effective barriers to trade: o health standards and regulations o domestic companies given preference in government contracts o longstanding monopolies 9

simon.fiala@seznam.cz Agriculture as a problem Common Agricultural Policy (CAP) extremely complicated Most of the budget goes to handling surpluses In 2007 the EU paid EUR 43bn to subsidize 13m farmers 429 Agriculture does not function on the free trade basis o Production is subsidised, prices artificially held on a high level, surpluses are unsuitable for export, surpluses bought out for set prices CAP as it is now is unsustainable, reform planned Moving to monetary integration 1979 1992 - weak monetary institutions o The European Monetary System a structure for financial policy coordination o The European Currency Unit a means of settling accounts o The Exchange Rate Mechanism providing fixed bands of currency exchange The Maastricht Treaty (1992) o Provision for founding the European Monetary Union o Individual states no longer make individual decisions on currency policies o The euro o High level of institutionalization

--- week 12 --o The North American Free Trade Agreement (NAFTA) 431 Substantially differs from the EU system a free trade area, not a common market Served north American MNCs allowed them to move production to Mexico and to build up large conglomerates The Treaty of Rome (1994) the US, Canada, Mexico Has extensive provisions intended to avoid conflicting interpretations in the absence of governing institutions highly legalized Dealing with trade in goods and services, financial services, investment, intellectual property rights, technical barriers, sanitary measures, safeguards and disputes o Social, political and security dimensions are absent Just one institution: the Free Trade Commission Oversees the implementation of the agreement, recommends, settles disp. Purpose: to eliminate tariffs and quotas, spur investment Success: trade in goods and services tripled in 1992-2007 (1bn) But evaluation of economic consequences is difficult as there are many interfering variables Controversies: Loss of jobs and wage standards in the US Companies dodge US environmental regulation by relocating to Mexico 10

simon.fiala@seznam.cz Mexicos agricultural sector suffered by the US imports Causes concentration of certain production in the most advantageous region, the art is lost in other areas cultural impoverishment The ASEAN Free Trade Area (AFTA) Purpose: to eliminate tariffs and quotas, spur investment In 2008 tariffs were reduced to 0-5% in 99% of trade commodities, by 2012 abolished altogether (except for staple food products) But neither it boosted intraregional trade nor it attracted investment so far Problems to integration: vast cultural differences, troubled histories China would like to join AFTA ASEAN crafted numerous preferential trade agreements with outside parties E.g. Australia, New Zealand, India Regional multilateral development banks Reason: dissatisfaction with the working of the WB Purpose: to promote regional integration and spur development while being more sensitive to regional needs and specifics The Inter-American Development Bank (IDB, 1959) Specialized in social sector lending (providing microloans etc.) Recently adopted a broader approach to development (like the WB) o = improvement of governance, promotion of democracy Consists of separate agencies which facilitate lending Has capital base of USD 101bn and lends 7-9bn annually Well connected to the civil society sector, praised for being sensitive to local needs, reasonably flexible and transparent The IBD closely connected to governments, the US holds 1/3 of the voting power; China is a member The Asian Development Bank (ADB, 1966) 5 core areas of operation: infrastructure, environment (+ climate change), regional cooperation, financial sector development, education Involved in energy, investment, transport, and water resource managem. 2 major shareholders: Japan and the US The African Development Bank (AfDB, 1966) 53 African nations + 25 non-regional members Shift from unconditional project funding to regulated sector development programmes Major revamp in 2002 renewed emphasis on poverty reduction, increased emphasis on social and infrastructure development The European Bank for Reconstruction and Development (EBRD, 1991) 436 Purpose: to aid transition of the non-market economies mainly in Eastern Europe to market systems (27 states) Allocation of EUR 25m on average Monitors enterprise restructuring and establishment of appropriate legal frameworks Distinguishing features 11

simon.fiala@seznam.cz Imposes political criteria: multiparty democracy and pluralism, capitalism o Promotion of environmentally sound and sustainable dev. o Transparency o As countries graduate, they no longer require support. Future of the EBRD? Critics of the liberal economic system and its governance o Criticism coming traditionally from developing countries o The UNCTAD as a forum o Rooted in Marxism and dependency theory o Challenges from mass social movements Jubilee 2000: advocating revocation of global debt to overcome injustice Problem: debt made by oppressive dictators and governments (odious debt) See: Burkina Fasos former president Sankaras speech on debt Protests against intl financial institutions and G7/8 o Approach to MNCs Problem: insufficient regulation of NMCs Seeking to provide developing countries with an international code of conduct throughout the 1970s and 1980s failure The OECD MNC encouraged to operate, but restricted by local rules Dispute settlement mainly through WBs International Centre for Settlement of Investment Disputes Combating bribery The Global Compact on Corporate Responsibility Championed by Kofi Annan A network of about 5000 entities designed to share intel. on how to tackle the challenges of corporate responsibility 9 principles (abolishment of child labour, discrimination, respect for intl law, etc.) Criticism o No compliance mechanism o Companies can cherry-pick and boast with compliance with some non-problematic principles while refusing others Case study: the global financial crisis and the need for economic reform o Periodic crises occur a characteristic of the liberal capitalist system o The 2008 crisis Originating in the US: imbalance of equity, highly leveraged new financial instruments (derivatives), trade (and liquidity) imbalance with regard to China and oil exporters. Subprime mortgage market began to crumble, crisis spilling all over the world Response: Unilateral bank and industry bailouts; Central banks engaged in currency swaps (?) Insufficient credit quashing investment and consumption; shrinkage 12 o

simon.fiala@seznam.cz Eastern European countries virtually collapsed in consequence of rapid withdrawal of foreign investment Developing countries faced with the prospect of reversal of globalization-driven growth Stimulus packages adopted by governments, short-term liquidity facilities created International financial institutions failing? Early warnings missed Inability to impose regulation on financial markets (creating bubbles) Call for reform China has to be given more substantial role in the global financial governance; it holds on to USD 2tn, which could be recycled through the IMF in order to maintain stability IMF surveillance and risk assessment strengthening of intergovernmental and quasi-private regulatory arrangements G7 G20 Dollar should be replaced as a reserve currency Better corporate governance and transparency Control of globalization, stronger global governance

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