Politics Paper 3: Global Governance: Political and Economic (2.2 Economic. 2.3, The ways and extent to which these institutions address and resolve contemporary global issues)

What is the G7? (originally the Group of 8 before Russia got kicked out in 2014),

'The Group of 7', is an informal bloc of advanced economies that meets annually to discuss issues such as global economic governance and international security. The Members of the G7 are: The United States Canada The UK France Germany Italy Japan (The EU also attends meetings but is not officially a member).

What are criticisms of the G20?

(1) Not all of its members are among the 20 richest countries in the world. (2) A lack of transparency and accountability. There is no formal charter and the most important meetings are held behind closed doors.

What are the weaknesses of the G7?

(1) The G7 has become far less relevant over recent years. At its peak in the late 1980s, G7 members produced nearly 70% of the world's GDP, but that has declined to circa 40%. (2) It is now widely accepted that the G20 has become a more important forum for economic discussion than the G7.

What are the strenghts of the G7?

(1) The G7 has made a number of important interventions in global politics. For example, in 2005, it cancelled all debts 19 countries owed to the IMF and the World Bank. (2) The G7 represents states with similar political and economic systems, which facilitates consensus and effectiveness.

What are the strengths of the IMF?

(1) The IMF will lend to countries that can find no other source of finance. As such it acts as a bulwark against economic disasters that may spill over and affect other economies in the world. For example, the IMF has taken the lead in bailing out a number of countries suffering debt crises as a result of the 2007-09 financial crisis - including Greece, Ireland, Portugal and Spain - which prevented the further spread of the crisis. (2) One could argue that the IMF has been largely successful at its primary objective: maintaining economic stability. Since 1945, the world has only seen two major economic crises: the oil crises in the 1970s and the Global Financial Crisis of 2007-09.

What are the strengths of the World Bank?

(1) The World Bank works closely with other intergovernmental organisations to create greater prosperity in the world. For example, it worked closely with the UN to halve extreme poverty in the world by 2015. (2) Another strength is its willingness to adapt. It has changed its approach to its loans from dealing out high-handed technical remedies to involving local people and NGOs in how loans are spent. (3) The World Bank is transparent and regularly writes (critical) reports about its projects.

What is on the spec for chapter 2?

- The IMF, its history, tasks, strengths and weaknesses. - The World Bank, its history, tasks, strengths and weaknesses. - The WTO, its history, tasks, strengths and weaknesses. - The G7/G20, their history, tasks, strengths and weaknesses. - How global economic governance deals with the issue of poverty. - Theories of global inequality and development theories. - How contemporary global issues are resolved. (the growing importance of NGOs).

The World Trade Organisation (WTO), although being a 'Bretton Woods institution' was not founded in 1944. Furthermore, it is not based in Washington. When was the WTO founded, and where are its headquarters located?

1995, Geneva. It was founded at the end of the so called 'Uruguay Round Agreements'

Between 1960 and 2000, the richest 20 states got ...% richer while the poorest 20 only grew by ..%

300, 20.

What are the weaknesses of the WTO?

According to many commentators, the WTO is too powerful. It can compel sovereign states to change laws and regulations by declaring them to be in violation of free-trade rules. Many 'more-developed' countries have not fully opened their markets to products from less-developed countries. For example, the US and the EU have refused to abandon protectionist policies of their agricultural industries during the Doha Round, which has disadvantaged 'peripheral' countries who could otherwise provide these goods at a lower price than US and EU producers. It is also claimed the WTO is indifferent to the impact of free trade on workers' rights, the environment and health. As a result, many of its meetings have been the target of anti-capitalist protests, such as those in Seattle in 1999 and Cancun in 2003.

What does pacta sunt servanda mean?

Agreements must be kept.

Why have Structural Adjument Programmes been criticised?

Because they attach conditions to loans to poorer countries such as privatisation of state-owned industries, cuts in public spending and encouraging foreign investment. This leaves these countries vulnerable to the dictates of TNCs and reduces the living standards of citizens. The record of SAPs is poor. Countries that have experienced the highest levels of growth have either refused loans, such as Malaysia after the Asian Financial Crash, or employed their own national strategies, such as India and China.

Explain Dependency theory.

Dependency theory argues that during the process of decolonisation, former colonies became independent states politically but remained economically dependent on their former colonial masters for trade. Like World-systems theory, Dependency theory refers to core and periphery countries. It argues resources flow from the periphery of poor and underdeveloped states to a core of wealthy countries which leads to the accumulation of wealth by the rich states at the expense of poor states. Dependency theorists argue that underdeveloped countries remain economically vulnerable unless they reduce their connections to the world market, the system is the problem.

What is 'the Quad'?

Four powerful states that share the same interest on key trade issues. Historically, the US, the EU, Japan and Canada have formed the dominant Quad in the WTO.

What are the strengths of the WTO?

It is considered to be a more democratic institution than its fellow Bretton-Woods institutions. Decisions are made by simple majorities and the member states elect its leadership. As a result, developing states are much more influential in the WTO than in the IMF and the World Bank. GATT and the WTO have been very successful in reducing tariff barriers. In 1947, average tariffs on imported goods were 40% of the value of these goods; by 2000 this figure had fallen to 3%. This means manufactured goods are more affordable for customers.

What are the weaknesses of the World Bank? (5)

It is often claimed the US has too much influence over the Bank and its policies. This has led to the World Bank being overly keen on deregulation, privatisation and the promotion of free trade. Furthermore, the president of the World Bank is always an American. The World Bank encourages poor countries to produce cash crops like cocoa and coffee. This leaves developing economies dependent on developed-world markets and vulnerable to the dictates of TNCs. It has not made good governance a requirement of its loans, it is self-explanatory where this money ends up. It encourages unsustainable development. An example of this was the Polonoroeste project in the early 1980s. During this project, extensive logging occurred, along with incursions into native reserves. Thousands of people died as malaria infections broke out. Its funds are relatively small ($63 billion in 2016).

What is a strange paradox when it comes to the criticisms that global governance organisations face?

On one hand global governance organisations are accused of being a form of world government that imposes decisions on states. On the other hand, they are accused of being ineffectual and inefficient talking shops where nothing gets done because unanimity is required.

There are two famous theories as to how to achieve economic development, a leftist and a rightist one. Can you name them?

Structural theory (leftist) and Classical economic development theory (rightist).

Explain how Structural theory (leftist) believes a country can most efficiently achieve economic development.

Structural theory believes poorer states should intervene substantially in their domestic economy to protect their industries and allow their countries to industrialise before entering the global market. The logic of these strategies rests on the 'infant industry' argument; which states that young industries do not have the economies of scale and experience to be able to compete with foreign competitors. Thus, they need to be protected until they are able to compete in the free market.

What effect has the introduction of Floating Exchange rates had on the financial system according to Susan Strange?

Susan Strange argues that modern-day capitalism is in fact a form of 'casino capitalism'. 95% of economic transactions are speculative, in other words, our entire financial system is one great bubble. The Asian financial crisis is a good example. The crisis started in July 1997 when speculators in Thailand, anticipating that the government would have to devalue its currency, sold their assets and thereby turned their expectations into a reality. Critics of neo-liberalism have therefore argued that the system is inherently unstable and should be replaced.

Provide a brief history of the G20 and who its members are.

The G20 was established in 1999 but its first summit was not until 2008. The purpose of the group is to promote international financial stability. At the Pittsburgh Summit in 2009, members agreed that the G20 would replace the G7 as the main forum for economic co-operation. The G20 is more diverse than the G7, with members from The Middle East, Africa, South America and Oceania. All member states have equal representation, whatever their wealth or size. The G20 represents two-thirds of the world's population, 85% of global GDP and 75% of world trade.

Provide a brief history of the G7.

The G7 started off as the Group of Six, which was formed in 1975 as a forum for discussion of the global economy. The initiative came from France and Germany. Its original membership was France, Germany, Italy, Japan, the UK and the USA. Canada joined one year later, making it the Group of Seven. Russia joined in 1998 and the group became the Group of Eight. However, after annexing the Crimea in 2014, Russia was kicked out and the group reverted to being the G7.

The WTO replaced the?

The General Agreement on Tariffs and Trade (GATT), which was a series of meetings between member states' finance ministers.

Explain why the IMF is dominated by the US.

The IMF's headquarters are located in Washington and because the US is the largest economy, it enjoys the largest proportion of votes. As decisions require majorities of 85 per cent of votes and the US has nearly 17 per cent, it effectively exercises veto power.

What are the permanent 5 members of the UN Security Council (the P-5) that have a veto.

The USA, China, Russia, France and The UK.

Explain how Classical economic development theory (rightist) believes a country can most efficiently achieve economic development.

The saint patron of classical economic development theory is Adam Smith. Smith argued economic development can be stimulated by the 'invisible hand' of the market. Countries should free markets, privatise state-owned industries and focus their economies on producing products in which they have a comparative advantage. Free markets allow all individuals in an economy to improve their conditions, this collective improvement by individuals equals national improvement: The Wealth of Nations. This approach is the approach the IMF and World Bank take for helping developing countries, it is the inspiration for the Structural Adjustment Programmes.

What is the main task of the International Monetary Fund (IMF)?

To maintain the stability of the international financial system. Its other two (less important) tasks are: lending and capacity development (giving policy advice to member states on financial matters)

What is the main purpose of The World Bank?

To reduce global poverty. In developing countries it has funded many projects, such as improvements to agriculture, roads and transport links. The aim of these projects is to reduce the proportion of the income that citizens spend on food so that they have more disposable income to spend in the domestic economy, stimulating economic development.

What is the purpose of the World Trade Organisation? (WTO)

To settle trade disputes between member states and enforce international trade rules. It does so via GATS (General Agreement on Trade in Services), TRIPS (Trade-Related Aspects of Intellectual Property Rights) and non-tariff barriers.

Why are trends in global inequality often highly complex and contradictory?

Trends in global inequality are often highly complex and contradictory. It is widely believed that in recent decades the growing importance of emerging economies has had an equalizing impact. However, this is counter-balanced by deepening poverty in sub-Saharan Africa and a general trend toward greater Intra-country inequality.

There are two influential leftist theories that attempt to explain why unequal economic development continues. Can you name them?

World-systems theory and Dependency theory.

Explain World-systems theory.

World-systems theory was developed by neo-Marxist sociologist Immanuel Wallerstein. Wallerstein argued that the modern world-system is characterized by an international division of labour between the 'core' and the 'periphery'. Core regions benefit from the concentration of capital in its most sophisticated forms, while peripheral ones are dependent on the export of raw materials to the core. However, Wallerstein argues, fundamental contradictions will ultimately bring about the demise of the world-system.