economic

• Globalisation is driving us towards an increasingly economically interdependent world. Economic global governance is needed to help states trade with one another more easily and to resolve economic crises that impact multiple states. It can also help with states' economic and human development, supporting international objectives.
• The IMF and World Bank were both established following the Bretton Woods conference in 1944. The IMF seeks to encourage global financial stability by providing technical advice, support and loans to its members. The World Bank focuses on long-term development and provides conditional loans for developing countries.
• Structural Adjustment Programmes

  SAPs, used by both the IMF and World Bank, are loans given which require the recipient state to meet certain conditions. It became clear that there was a high risk of states being unable to repay loans, so SAPs were suggested as a way to remedy the inefficiencies of developing countries and misguided government policies. They are no longer called SAPs, but their conditionality remains.
• In Argentina, the IMF gave a loan of $56 billion (the largest loan in the history of the IMF) with the condition that Argentina increase taxes and cut public spending as well as have an independent watchdog for budget spending. While taxes were increased, they defaulted on their debt for the 9th time in 2019 and continue to owe billions in loans to the IMF, with Covid having further reduced economic growth.
• Criticisms of SAPs

  Economic reforms see an increase in corporate profits that are not necessarily shared with wider society. Some developing countries see an increase in inequality, suggesting that SAPs disproportionately benefit the wealthy - tax increases can hit the poorest the hardest, particularly indirect tax. Reform of the formal sector, such as profit-making companies, does little to improve the lives of the poorest who work in subsistence activities or the informal economy.
• When the IMF was founded, its main role was to encourage stability in world exchange rates, but the fixed exchange rate system broke apart in 1971 when the US dollar was no longer fixed to the price of gold.

  Today, the role of the IMF is to provide economic stability by giving financial support to struggling states, monitoring the economic outlook of the world economy and of individual member countries and advising member countries on how best to manage their economies.
• The IMF has 190 member states - aside from very small states such as Monaco, only North Korea is not a member country. It is led by a managing director and publishes an annual report on the world economic outlook, working to identify risks in the policies of its member states. During the 2016 Brexit referendum, the IMF published a report that predicted Brexit would increase inflation and reduce the UK's GDP by 5.5%, but critics argued that this report was unnecessary interference in British citizens' decisions.
• The main source of the IMF's financial resources is payments made to the fund by its member countries. These quotas reflect members' relative positions in the world economy - in 2008, for example, the IMF increased the amount of funds available for lending in response to the global financial crisis, with member states asked to pay more in their quotas.
• Some have criticised the IMF for being undemocratic, as voting power is weighted according to how much states contribute financially in the quote which allocates more power to already economically powerful states. On the other hand, some say it is legitimate for states that contribute more to have more say in how their contributions are allocated.
• A key role of the IMF is to respond to financial crises, aiming to keep afloat the economies that are suffering the most and prevent them from collapsing or going into extreme debt and to prevent financial crises from spreading. Apart from the global financial crisis, the IMF has assisted with the Asian financial crisis (1997), emergency lending to Brazil (1998) and the Eurozone crisis (2008 onwards).
• Greece has been a major recipient of IMF loans and has accumulated large debts due to high public spending and low GDP growth. In 2015, Greece failed to make a payment to the IMF - the first developed country to ever do so. Banks closed amid fears that Greece would leave the Eurozone, but a bailout deal agreed later in the year was able to keep the Greek economy afloat.
• Benefits of the IMF

  It gives loans to states and reduces their likelihood of falling into recession. It also prevents economic difficulties from spreading between states. Pooling funds provides a clear framework for states to help each other, complying with liberal ideas of cooperation. It provides an independent monitor of state economies to point out threats and opportunities, and encourages states to reform their economies.
• Drawbacks of the IMF

  It forces states to comply with conditionality in a way that interferes with sovereignty and promotes a neoliberal, Western-dominated economic model. SAPs do not benefit the poorest but boost corporate profits and serve developed states' interests. It failed to predict the global financial crisis or warn against reckless lending despite being responsible for monitoring, and didn't stop the spread of the crisis once it occurred.
• Founded at the Bretton Woods Conference in 1944, the World Bank is a source of loans for reconstruction and development in countries lacking financial capital. In the aftermath of World War 2, the immediate priority was to help with rebuilding key infrastructure such as roads and electricity.
• In India, the World Bank has provided $3.4 billion to improve access to clean drinking water and sanitation since 2000; this project is estimated to have helped 36 million people. In Afghanistan, the World Bank has invested over $4.7 billion since 2002 for development and reconstruction. This has been mostly through grants and no-interest loans, and the Afghanistan government has part-funded many projects.
• As with the IMF, voting power in the World Bank is weighted according to the amount that member states contribute. The US carries 16% of the voting power, while no other country carries more than 5%, leading some to see the US as dominating the World Bank. Every president of the World Bank ever has been a US citizen and was nominated by the US.
• Since the creation of the World Bank, other international banks have been set up. One of the most notable is the Asia Infrastructure and Investment Bank (AIIB), which launched in 2016 and has 103 members including Russia, China, India, Canada and the UK. The US is not a member. Votes are weighted similarly to in the World Bank, and China holds the most.
• The World Trade Organisation's primary goal is to reduce barriers on trade in both goods and services, including reducing both tariffs and quotas. The WTO is not the only means by which states can reduce tariff barriers - for example, the EU and UK do not trade with each other on WTO rules but have a specific free trade agreement singed in 2020.
• The WTO checks that states are following trade agreements, helps to resolve trade disputes, and produces research on economic policy. Its 164 member states account for 97% of world trade. The founding rules of the WTO have been added to through negotiating rounds, of which there have been 9. Every member must agree for a round to be successful, and the WTO hasn't been able to agree on a rule revision since the latest round starting in 2001.
• The Doha round of WTO negotiations (2001-present) was intended to make progress in widening free trade with developing countries. The talks are in gridlock due to disagreements over reductions in agricultural subsidies, with developed states defending them as they feel threatened by cheaper agricultural imports. Critics say that this highlights the WTO's inability to make decisions quickly.
• Successes of the WTO

  It has reduced the cost of international trade by successively reducing tariffs, expanded a single set of trade rules to 164 member states, and increased predictability and stability in world trade with a dispute resolution form.
• Weaknesses of the WTO

  Consensus decision-making is slow, economically powerful states hold significant bargaining power over developing ones, and it is frequently sidelined by states creating their own trade agreements or engaging in retaliatory measures (such as the US-China trade war).
• The Group of 7 is an informal forum founded after a 1975 gathering of the finance ministers of the world's six wealthiest economies. There is no formal application or criteria for membership and it can expel or invite who it likes. Canada became the seventh member in 1976, and Russia accepted an invite to join in 1997 but was suspended after its annexation of Crimea in 2014.
• Informal forums like the G7 and G20 differ from IGOs in that:

  • they have no formal rules
  • any states, IGOs or NGOs can be invited to meetings
  • they have no budget or supporting secretariat - if member states want to take action that costs money, they pay for it themselves
  • decisions taken are not binding and rely on the individual will of the participating states
  • there are no defined objectives, allowing enormous flexibility in tackling current issues
• During the 2021 G7 meeting, held in Cornwall during the UK presidency, they covered a response to COVID-19 which resulted in the commitment of 1 billion vaccine doses between the summit and mid-2022 as well as a tax system meant to be 'fair across the world', including a global minimum corporation tax of 15% with the aim of bringing in G20 states. G7 states also committed to net zero carbon emissions by no later than 2050, halving collective emissions by 2030.
• Criticisms of the G7

  Its membership reflects an outdated vision of the world's economic powers, excluding China and rising powers such as Brazil and India. There was much division during Trump's presidency, demonstrating a clash of world outlook between the US and its traditional allies. It is made up of a group of states that already (normally) agree with one another, confirmed by the 2014 expulsion of Russia, which was more of a punishment than an attempt to persuade Russia to pursue a different course.
• Strengths of the G7

  There is little impact on state sovereignty, as states are never forced to do anything they don't agree with. Informality allows its members to focus on any issue of importance and respond to major issues of the moment, and having a smaller number of member states prevents a gridlock in decision making.
• Weaknesses of the G7

  They have less frequent meetings, so the G7 acts in bursts rather than consistently. It is a forum for like-minded allies rather than resolving differences of opinion, and no longer necessarily reflects the states that are the most economically powerful. Being informal, there is little accountability, with no checking that states deliver on the commitments they have made.
• The G20 was created in 1999 to expand the G7, accommodating a wider group of industrialised states and emerging economic powers. The stated objective of the G20 at its founding was for it to be 'an informal forum that promotes open and constructive discussion between industrial and emerging-market countries on key issues related to global economic stability'. The G20 includes African, Asian and South American countries and is better and more relevant than the G7 when dealing with major economic crises, such as the 2008 global financial crisis.
• G20 membership represents both established and emerging economies, together accounting for almost two-thirds of the world population. Key economic international organisations, such as the African Union and ASEAN, attend all of its meetings as permanent guest invitees. Meetings are annual with a rotating presidency, and the agenda for meetings has become increasingly broad, extending beyond economic matters to issues like climate change and global terrorism.
• Strengths of the G20

  It balances traditional, newly emerged and emerging economic powers, making it neither too exclusive (G7) nor too comprehensive (WTO). Inclusion of major IGOs has significant benefits, such as providing the world's most powerful economies with the opportunity to influence these IGOs and regional organisations like the EU and ASEAN. Membership includes states that don't always agree with one another, creating a forum for dispute resolution. It was at a 2019 G20 summit that presidents Trump and Xi agreed to de-escalate the trade war between the US and China.
• Criticisms of the G20

  Divisions in the G20 have become more tense in recent years. Some also criticise the G20 as just a slightly less exclusive version of the G7, with no transparent membership criteria. States can't be held accountable for the decisions made at G20 summits. There is criticism that G20 outcomes are too watered down since they need to be modified until every state is happy with them - they are the most that each state present could agree upon rather than necessarily the most decisive agreement, and are therefore sometimes referred to as the 'lowest common denominator'.
• The G20 has taken decisive action on both economic and non-economic matters. It played a central role in agreeing that states would inject significant amounts of government money into banks to prevent their collapse and to ensure that the wealthiest states and IGOs work together to prevent and regulate bank accounts funding terrorism.
• The global financial crisis

  Many see the 2008 crisis as a failure of global governance. IGOs like the IMF were designed to predict and prevent such issues, and both IGOs and individual states did little to tackle the lack of regulation that led to the crisis. Once the crisis hit, however, these institutions were effective: the 2009 G20 summit allowed states to discuss measures to tackle the crisis; the IMF mobilised its funds to lend up to $700 billion; the World Bank tripled its lending (especially to middle-income states) to prevent recession spreading further.
• 2009 G20 Summit, London


  In dealing with the global financial crisis, states took decisions to inject capital into their banking systems to prevent their collapse. This was arguably the most important action taken, as it protected the banks that were 'too important to fail'. Most states took this action themselves - the UK government, for example, brought the Royal Bank of Scotland under state ownership.
• Poverty can be measured in terms of absolute poverty, focused on basic needs such as food and water and defined by the World Bank as earning less than $2.15 per day; relative poverty, defined as those living in households that earn below 60% of the median income in that state; multi-dimensional poverty, which states that poverty isn't just about income but factors such as access to clean water, electricity, health and education, which can be measured by the Human Development Index.
• The orthodox view of development sees it as advancing purely in terms of economic growth, assuming that improvements to other sides of development such as healthcare and literacy will follow. Critics of this suggest that it fails to consider the distribution of wealth, and that the rich may be building their wealth while most of the population remains in poverty. The orthodox view of development is linked to neoliberalism and has been particularly favoured by the IMF.
• Alternative views of development focus on human development and well-being, considering factors beyond economic growth, including life expectancy and education. The HDI and multi-dimensional poverty index are key measures of this type of development. Amartya Sen took this further and argued that democracy and human rights are an important part of development, and people are likely to lift themselves out of poverty when empowered to do so.
• While realists argue that states should prioritise their own development, only helping others when it benefits their own interests, liberals believe that developed states have a responsibility to help less developed states with the help of IGOs and international targets like the SDGs. Realists think that aid and debt relief might make recipient states dependent and enable them to continue mismanaging their resources, but liberalists think debt relief helps states invest in their own development and aid can empower developing states.
• The North-South divide

  MNCs in the global north are seen to exploit states in the global south for cheap labour and natural resources, continuing to exert overwhelming power over the global south for economic gain even after decolonisation. States in the global south that have rapidly industrialised and grown economically still suffer from considerable poverty and income inequality, such as in India. The Bretton Woods institutions were created by states in the global north for their own gain, and northern states continue to dominate decision-making in, for example, the WTO and IMF.