Economic governance

• General Agreement on Tariffs and Trade (GATT) signed by 23 nations


  1947
• The GATT had 100 signatories and the WTO was created


  1995
• Role of the WTO

  • Continues to work on reducing trade barriers for goods and services and it seeks to do this by removing tariffs imposed by states on imports under agreed rules
  • It also places quotas on imports of specific goods from other countries
  • States can negotiate tariffs among themselves also, I.E the EU and UK do not trade under WTO rules and instead trade via an agreement from Dec 2020
  • The EU and Australia trade under WTO rules
  • Checks states follow agreements
  • Resolves disputes
  • Prevents unilateral trade wars
  • Researches and publishes its findings with respect to global trade and economic policy
• WTO Membership


  • 164 members
  • Account for 97% of world trade
  • Takes years to be improved, Algeria applied in 1987 and is not yet a member
  • Iraq, Somalia, Afghanistan, Libya and the Sudan are currently applying
  • Members get rights to export under WTO rules but have an obligation to limit tariffs on imports
  • Conference held every two years and decisions are made by consensus as a whole and they are binding
• 6 key principles of the WTO

  • Non Discrimination – partners are treated equally and fairly and cannot discriminate between their own and foreign products once tariffs have been paid
  • More open – commitment to free trade
  • Predictability and transparency – not raise barriers without warning as stability is needed
  • More competitive – states must not interfere to give themselves an unfair competitive edge (i.e price dumping)
  • Benefits for LEDCs– scope for developing countries to catch up and participate
  • Protecting the environment – this must be protected nationally and globally
• Kennedy Round - Removed $40bn of trade barriers and dealt with price dumping (dumping products cheaply in other states in order to dominate the market in that state)


  1962-67
• Global economic governance


  The rules, norms and institutions created to manage the global economy
• Focus of global economic governance

  • Free trade
  • Single currency
  • Poverty and development
  • Forums to discuss global economic crises
• Examples of global economic governance

  • EU single market
  • Eurozone
  • UN Millennium development goals
  • 2008 financial crisis where the IMF raised loans to bail out economies
• Bretton Woods conference


  1944
• Bretton Woods conference


  • 44 nations of WW2 allies met to consider how the economy could be managed in peacetime
  • Founded the IMF and the WB
  • Agreed that financial pressure was one reason for the rise of fascism in Germany
  • Sought to create rules for economic matters and trade, stabilise world currencies, prevent events like the great depression in 1930 and reinforce capitalism against the rise of communism
• International Monetary Fund (IMF)

  • Became functional in 1947
  • Role was to promote stability in world exchange rates by using a system of fixed exchange rates, based on the US dollar which is fixed to the price of gold
  • Fell apart in 1971 when Nixon abandoned the link between the US dollar and gold
  • Its role now is economic stability via financial support to states that are suffering from debt (Greece), monitoring of the world's economy and states economy via surveillance to raise living standards, forecasting, advising member countries (LEDCs), publishing annual reports on the world economic outlook
• IMF has 190 member states
• Managing director of IMF is Kristalina Georgieva from Hungary
• In 2016 the then managing director of the IMF predicted that Brexit would lead to inflation and reduce the GDP by 5.5%


  This attracted a lot of criticism from the leave campaign
• IMF resources


  • Members fund the IMF via payments which reflect the IMF's wealth
  • Voting power is weighted on contributions
  • Allows powerful states to dominate the IMF's goals and lending
• Structural Adjustment Programmes (SAPs)


  • Loans to member countries are conditional and usually the country will need to undergo economic reforms to prevent the issues causing it to need a loan
  • Washington Consensus – conditionality policies like austerity
  • IMF might request that: they eliminate the budget deficit through cutting public spending and raising tax, sell government-owned assets, increase tax to pay for public services, reduce public sector wages and pensions
• Examples of IMF SAPs

  • Argentina - biggest loan in IMF history of 56 bn dollars, Argentina had to create a plan to cut spending and increase tax as well as create a watchdog for its budget
  • Pakistan - 6 bn dollars, Pakistan had to create tax reforms
  • Greece - Troika - IMF worked with the European Central Bank and the European Commission in a three-way partnership to provide emergency loans and this required negotiation on the amount and conditions between the three, demanded Greece implement austerity to reduce public spending
• The impact of IMF SAPs in Argentina was that Argentina defaulted on its debt and owes billions to the IMF, and Covid has reduced economic growth further
• The amount raised in taxes in Pakistan has been steadily increasing and there are negotiations between the IMF and Pakistan over further tax reform
• In 2015 Greece became the first developed country to fail to make payments to the IMF and banks in Greece closed in fear of Greece leaving the Eurozone
• Critiques of IMF SAPs

  • Excessive demands on states
  • Infringes on sovereignty
  • Privatisation increases corporate profit that is not shared with society
  • Tax increases can disproportionately impact the poor
  • Imposes a neoliberal economic model of economic policy
  • Loans should not be unconditional to encourage states to sort their financial difficulties out
  • Can encourage FDI which exposes fragile economies
  • LEDCs increase in prosperity but this often increases child poverty and inequality, meaning SAPs disproportionately benefit the rich
• SAP reform


  • Moving towards replacement of SAPs with PSRPs (poverty reduction strategy papers)
  • Designed to be flexible, to promote local ownership, and fit in to adapt to countries' needs and circumstances
  • Making loans conditional on sustainable development, good governance, and anti-corruption
• World Bank


  • Also founded at Bretton Woods
  • Act as a source of grants and loans for reconstruction and development projects in countries lacking financial capital
  • 50 bn dollars each year to projects and financial assistance
  • Rebuilding infrastructure after WW2
  • In 1980s used SAPs, but now instead of loans it gives grants to LICs and for middle-income it gives loans without conditions
  • Focus is Millennium Development Goals and Sustainable Development Goals
• World Bank projects


  • Reconstruction in Afghanistan since 2002 – WB has invested 4.7bn through grants and no interest loans for development and reconstruction
  • Water and sanitation since 2000– invested 3.4 bn to improve access to clean water which has helped 38 million people have access to drinkable water
• World Bank structure


  • WB executive board
  • Approve loans, budgets, programmes and priorities
  • Once the board has made decisions it is put to a member vote, weighted according to the amount states contribute
  • The US has 16% but no other state has more than 5%
• Effectiveness of World Bank

  • Largely successful in reducing global poverty and improving sustainability
  • World experts in economics offer advice via think tanks so that development is informed professionally and to ensure best practice
  • South korea received just under 15bn to develop and now is a leading donor to LEDCs
  • Moved away from conditional loans which means it is less demanding
  • Criticised for pushing neoliberal reform
  • Competing development banks like Asian Infrastructure and Investment bank to have a less US dominated bank
• Differences between IMF and World Bank

  • IMF provides assistance on managing economies
  • WB provides assistance on how to manage development needs
  • IMF focussed on economic growth both nationally and globally
  • WB is focussed on tackling extreme poverty and producing sustainable development
  • IMF assists governments with loans to pay back private banks and focusses on emergency assistance
  • WB provide grants for long term projects and is funded largely through grants not loans
• Strengths of the IMF

  • Conditionality of loans has been successful in South Korea, Jordan, Chile
  • Lender of last resort and offers competitive loans to stop the spread of economic crisis like the Asian Financial Crisis
  • Since global crash there is monitoring and risk management
  • Stabilised things from 1945-70
  • Reconstructed after WW2
  • 189 members for funding
  • No one has to accept the loans
• Weaknesses of the IMF

  • Conditionality has harmed some countries like Tanzania, and some loans have worsened crisis like Thailand in 1997
  • The Asian Financial Crisis spread to russia in 1998
  • Conditionality was motivated by MEDCs to open up markets in their favour
  • Loans were made to dictatorships with poor human rights records
  • Global stability has decreased in the last 25 years
  • SAPs damage sovereignty
  • US and Europe dominate voting power
• Income poverty


  Not earning an income at all or earning an income that is not sufficient for living safely
• Lack of social needs


  Access to clean water, shelter, education, healthcare and human rights
• How the UN measures poverty

  • Extreme Poverty – earning less than $1.90 a day (700m people, 80% in South Asia and Sub-Saharan Africa)
  • Relative poverty – comparing living standards in the same society and state
  • Multi-dimensional poverty – standards of living, school attendance, drinking water, sanitation etc
• The UN found that between 2010-15 the world's population that lives in extreme poverty fell from 15.7-10%
• COVID is expected to push 77m into extreme poverty
• GDP and Human Development Index


  Life expectancy, education and GNI per capita
• Development


  Seeking to improve society socially and economically, and in doing so, reducing poverty
• There is a link between human rights and development


  Women's rights and refugee protection
• Different views of development

  • Orthodox views
  • Alternative view
  • Realist views
  • Liberal viewpoint
• Orthodox views of development

  Viewing development purely in economic growth, unlimited growth is possible and should be measured in GDP, criticisms argue this is too narrow