International Organisations & Governance
There will NOT be a lecture on this material - it is not an efficient or effective use of scarce class time to deal with this material as a lecture.

Introduction

In July, 1944 the major (Allied) powers of the world held a conference under United Nations auspices, at Bretton Woods, New Hampshire, US, to consider the management and organisation of a post-war world. The conference resulted in the creation of the International Monetary Fund, to promote international monetary cooperation, and of the International Bank for Reconstruction and Development. By Dec., 1945, the required number of governments had ratified the treaties creating the two organizations, and by the summer of 1946 they had begun operation.  A third world organisation, the International Trade Organisation, was also proposed, but was not ratified (by the US in particular), so was not established at that time.  Instead, the International Community established General Agreement on Tariffs and Trade (GATT) in 1947, which became the treaty according to which international trade relations were to be governed and through which disputes were to be resolved.

Why?  The experience of two major world wars, and also a world-wide Great Depression in the 1930s, convinced the world leaders at that time of the need for International governance and organisation of their international relations.  The major objective was to prevent the world falling into another Great Depression - widely accepted as having contributed to the rise of fascism and a major factor in the generation of WWII. The causes/contributors to the Great Depression of the 1930s were understood to have been monetary and fiscal inflexibility (leading many countries to pursue tight monetary policies, exacerbating the depression, while also attempting to balance government budgets, restricting government spending to match falling tax revenues, also contracting economies. In addition, many countries also resorted to trade protection (tariffs and import quotas) in a misguided attempt to protect their own producers, with the result that trade flows fell, and with them export earnings, further deepening the depression. World leaders and their advisors were determined not to let such an event happen again, and hoped to institute three major world (UN) organisations to help prevent it.
(Lord) John Maynard Keynes and Harry Dexter White were the intellectual founding fathers of the IMF and the World Bank. White was the chief international economist at the U.S. Treasury. In 1944, he drafted the American plan for the IMF that competed with the British Treasury blueprint drafted by Keynes.


The International Monetary Fund (IMF),
is a specialized agency of the United Nations, established in 1945. with its headquarters in Washington, D.C. (opposite the World Bank, see below, with which there is (supposed to be) close collaboration). It is "an organization of 184 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty." (to quote the banner on the IMF's front page)
The IMF, using a fund subscribed by the member nations, purchases foreign currencies on application from its members so as to discharge international indebtedness and stabilize exchange rates. In other words, it acts as reserve banker to the member states Central Banks.
To facilitate international trade and reduce inequities in exchange, the fund has limited power to set the par value of currencies. Members are provided with technical assistance in making monetary transactions. In 1995 the fund moved to increase disclosure requirements of countries borrowing money and at the same time created an emergency bail-out fund for countries in financial crisis. IMF was criticized in 1998 for exacerbating the Asian financial crisis, through the fund’s decision to require Asian nations to raise their interest rates to record levels. The fund is ruled by a board of governors, with one representative from each nation. The board of governors elects an executive board of some 20 representatives to conduct regular operations. There are 184 members in the IMF (2001).

The IMF currency reserve units are called Special Drawing Rights (SDRs), an international monetary reserve currency established (1968) by the IMF. Created in response to worries concerning the limitations of gold and dollars as the sole means of settling international accounts, SDRs are designed to augment international liquidity by supplementing the standard reserve currencies. SDRs are assigned to the accounts of IMF members in proportion to their contributions to the fund. Each participating country agrees to accept them as exchangeable for reserve currencies in the settlement of international accounts. Deficit countries can use them to purchase stronger currencies, which then can be used to pay off balance-of-payments debts. As nations adopted the current system of floating exchange rates (1973), the value of SDRs began to be set relative to a “basket” of major currencies. In 1981 the IMF reduced the basket to five currencies (the U.S. dollar, German Deutschmark, Japanese yen, French franc, and British pound); in 1999 the Deutschmark and franc were replaced by their equivalents in the euro. All IMF accounting is done in SDRs, and commercial banks accept SDR-denominated accounts. The IMF has the exclusive right of allocating SDRs; the last such allocation was made in 1981 (as of 2001).

For further details of the IMF and its operation, see the IMF's student pages.

The World Bank.
The International Bank for Reconstruction and Development (IBRD) - more usually known as the World Bank, again a specialized agency of the United Nations, with headquarters at Washington, D.C.  It was formally organized in 1945, when 28 countries ratified the agreement, with an initial focus on reconstruction of Europe following WWII ("the last part, "Development" was added almost as an afterthought" (Stiglitz, p 11). There are now 184 members. The bank not only makes loans to member nations, but, under government guarantee, to private investors, for the purpose of facilitating productive investment, encouraging foreign trade, and discharging burdens of international debt.
All members of the bank must also belong to the International Monetary Fund. The bank is self-sustaining and has maintained a profit on its lending activities. It is controlled by a board of governors, one from each member state. Votes are allocated according to capital subscription. Ordinary affairs are conducted by 22 executive directors, five appointed by the five largest capital subscribers, the United States, Germany, Japan, Great Britain, and France, and 17 elected by the remaining members. Regional vice presidents oversee the bank’s operations in five regions: Asia, Latin America and the Caribbean, East Africa, West Africa, and (in one grouping) Europe, the Middle East, and North Africa.

The bank also operates the Economic Development Institute, which offers training in economic development for officials of member countries. Closely affiliated with the bank is the International Finance Corporation (est. 1956), which invests in private enterprises without government guarantee. The bank organized the International Development Association (1960) to extend credit on easier terms, mainly to developing countries. The group of (5) institutions is known as the World Bank Group. Criticism that the IBRD-financed projects were environmentally destructive led the bank to establish an environmental fund (1990) providing low-interest loans for developing countries. Developing nations have complained that the IBRD imposes the free-market system on them, thereby discouraging planning, nationalization, and public investment.

"The World Bank Group’s mission is to fight poverty and improve the living standards of people in the developing world. It is a development Bank which provides loans, policy advice, technical assistance and knowledge sharing services to low and middle income countries to reduce poverty. The Bank promotes growth to create jobs and to empower poor people to take advantage of these opportunities" (from the Bank's information page)

Note: Although the World Bank is the most important, it is far from the only international organisation trying to assist and fund development. Not only do all developed countries have their own aid and development government departments (e.g. the Department for International Development (DfID) in the UK), but there are also several regional development banks, including the Inter-American Development Bank, the Asian Development Bank, the European Bank for Reconstruction and Development (EBRD), the African Development Bank, The Islamic Development Bank, the Carribbean Development Bank.
The GATT (now the World Trade Organisation, WTO).

GENERAL AGREEMENT ON TARIFFS & TRADE: signed in 1947 consisted of:

GATT History: Note: "request/offer" and "rules/codes" processes of negotiations mean what they say.  The first consists of each party making offers of what it will do and requests for what it expects other parties to do in terms of reducing barriers to trade.  The second consists of the negotiating parties trying to agree a specific set of codes and rules by which tariffs and other barriers will be defined, and reduced.  The major point of holding Multilateral Trade Negotiations (MTNs) in 'rounds' embracing a number of different sectors (potentially all of them) is that countries can hope to 'win' some concessions from others in some areas, in return for giving up some protection of their own in other areas (sectors). It is frequently remarked that this negotiation (bargaining) is essentially mercantalist (you scratch my back ...) rather than premised on the economic arguments in favour of free trade. However, it recognises the difficulties that  elected governments have in persuading domestic constituencies to give up previously protected status.  Agriculture is, perhaps, the classic case.

GATT Principles: GATT and Agriculture: - Agriculture treated as an EXCEPTION from the outset - quotas (A.11), export subsidies (A.16) allowed under special status clauses - Reinforced by 1955 US indefinite waiver on ag., 1956 effective extension of this waiver to EC and CAP - which granted supremacy of domestic farm policies over GATT principles.  

But, by 1980s, Special Status of Agriculture was no longer sustainable .  -> Uruguay Round:  the Agreement on Agriuclture (URAA), which effectively brings agriculture within the general provisions of the GATT, and the final formation of the World Trade Organisation (1995), completing the International Governance structures envisaged at the end of WWII.

"The past 50 years have seen an exceptional growth in world trade. Merchandise exports grew on average by 6% annually. Total trade in 2000 was 22-times the level of 1950. GATT and the WTO have helped to create a strong and prosperous trading system contributing to unprecedented growth." WTO breifing page.


DO THESE ORGANISATIONS WORK?
Whatever their faults, and there are bound to many, it is very difficult to conclude that they have not materially assisted the growth and development of many of the world's economies in the past 60 years.  While some will quarrel that economic development still has a massive way to go, and that economic growth itself is not necessarily a uniquely desirable objective, it is almost impossible to conclude that by and large people in the world are not better off than they were before these organisations, and the spirits and ideas which they reflect, came into being.

Nevertheless, financial and economic crises still occur (in spite of the IMF); a dreadfully large number and proportion of the world's population still exist in absolute poverty, if not actual starvation (in spite of the World Bank); trade disputes are frequent, trade protection (especially in agriculture and raw materials) persists, and martets are often seen as less than fully competitive, in spite of GATT and the WTO.

The very existence of these organisations is testimony to the fact the markets do not always (even, perhaps often) work well on their own - they need enlightened and sensible government and governance, as noted in the previous session. The major reasons why markets fail (in the context of globalisation) is the subject of the next session.  In addition, however, each of these organisations is political - they depend on international agreements politically negotiated for their existence and their funding. If they do not follow the political imperatives which underly their existence and continued operation, they will fail. The politics on which they rely is not democratic, in the sense of one person, one vote, but real politique - the powerful and the rich nations have much more say than the poor and the weak. So, we can expect that there will also be political failure in their operation. Finally, they are bureacracies - populated with the products of the world's most 'advanced' schools and universities, and defensive of their own 'established wisdoms', however theoretically unfounded or ungrounded in real evidence these turn out to be. Typically, individuals and groups within these organisations will be alive to these dangers, and will seek alternatives. However, pursuit of these alternatives through the bureaucratic heirarchies is always likely to slow.

In short, they are the best we have so far managed to produce, but are clearly far from perfect. The next session examines the key problems (from your lecturer's perspective.
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