The Global Economic Multilaterals: Will Eighty Years Be Enough?

Abstract

THE GLOBAL ECONOMIC MULTILATERALS (GEMs)--the International Monetary Fund (IMF), World Bank, and World Trade Organization (WTO)--occupy a central role in the architecture of global governance. (1) These peak organizations in the domains of monetary and financial relations, development, and trade have owed their position to their efficacy, legitimacy, normative identity, and adaptability. * The GEMs have demonstrated efficacy: they produce discernable results through their actions. They have evolved over time to serve as useful instruments of collaboration among the principal economic powers and, in the eyes of weaker powers, modest constraints on unilateral action by the strong. * Their multilateral character and near-universal membership award them substantial legitimacy. Membership in the IMF and the World Bank (the latter dependent on the former) is nearly automatic for new states. Among members of the United Nations, only two Cold War artifacts (North Korea and Cuba) and a handful of microstates are not members of the international financial institutions (IFIs). Accession to the WTO is more arduous, and a number of Middle Eastern, Central Asian, and African states are not members of the WTO. * The norms and practices of these organizations award them a distinct and controversial identity. The Bretton Woods settlement after 1945 did not embody a hard-edged commitment to liberalized international exchange or unregulated markets. Capital controls were endorsed; a prominent state role in development was accepted; and trade negotiations took place on the basis of reciprocal concession, not unilateral liberalization. By the 1980s, however, the GEMs had become identified with limits on state intervention in the economy and openness to cross-border exchange, the so-called Washington Consensus. (2) The IFIs and the WTO occupied prominent roles as globalizers. (3) * Adaptability has been a final characteristic of the GEMs. They have demonstrated their ability to change in response to new international actors and shifts in the global environment. Under conflicting demands for change today, continued reinvention will be essential. If not, their useful life span may prove to be eight decades. The efficacy of the GEMs was owed to the ability of an expanding club of industrialized countries (with the United States first among equals) to dominate decisionmaking in these organizations. Their usefulness to the club of economic powers became more apparent as trade and financial flows increased in the 1960s. The dominance of these economic powers was based on formal decision rules, such as weighted voting in the IFIs, and informal groups, such as the Quad of trading powers that led negotiations in the General Agreement on Tariffs and Trade (GATT). US influence was amplified beyond its formal vote share by informal governance within the IMF and other organizations. (4) Dominance was also ensured by the relatively weak engagement with the GEMs of most developing countries during this era of import substitution and state-led industrialization. Special and differential treatment was two-edged: developing countries were not held to the same policy standards as industrialized members, but their voice was heavily discounted as a result. This cozy world of club governance came under strain beginning in the 1980s. As large developing economies opened to the international economy, they became more vulnerable to internationally generated shocks (and crises) and more dependent on international trade and finance for economic success. The GEMs promoted this new orientation toward economic openness, but the global multilaterals also became targets of the proponents of national autonomy and the opponents of globalization. Financial crisis management by the IMF (with the World Bank in a supporting role) provoked waves of criticism of the IFIs and their policy prescriptions. The Asian financial crisis in the late 1990s led to disengagement from the IMF, reliance on self-insurance through an accumulation of reserves, and experimentation with regional financial alternatives. …