In the past, the great post-World War II institutions of international economics--the International Monetary Fund (IMF), the World Bank, and the enforcement bodies of the General Agreement on Tariffs and Trade (GATT)--have operated under the cover of bureaucratic darkness. Some lobbyists in Washington knew about them, but few voters knew what the Kennedy Round was or what the IMF did. But in the past year, the operation of these international institutions has become a major issue in Congress and the presidential campaign, and their conduct has already sparked the kind of militant left-wing demonstrations not seen for three decades.
Why have these issues come to the fore now, and what are the choices facing Americans? Were the demonstrators in Washington last month right to single out the World Bank as well as the IMF for attack? Is the AFL-CIO justified in trying to derail China's entry into the World Trade Organization (WTO)?
These public battles over the role of international organizations stem from changes in the world economy that began decades ago. The most important is the spread of the multinational corporation. Businesses in the more-advanced countries have been making investments in less-advanced countries for hundreds of years, but primarily to extract raw materials and to produce goods for regional markets. In the past 40 years, a new group of multinational corporations has increasingly made investments in order to produce for an integrated world market in which capital roams the globe in search of lower costs of production, and in which products themselves are likely to include components from many different nations. As of 1997, 40 percent of American imports were actually coming from American multinationals overseas. These corporations and banks have acquired a vested interest in breaking down barriers to trade and investment and in reducing regulatory restraints in their host countries. In the United States, this has led to heated conflicts with labor and with purely domestic manufacturers that culminated in the struggle over the North American Free Trade Agreement in 1993 and over China's entry into the WTO this year.
These changes have helped to alter the role of international economic institutions. The institutions were set up after World War II to prevent a new depression and war--the IMF and GATT by making sure that the world didn't fragment into hostile trading and currency blocs, and the World Bank by aiding the recovery of war-torn economies. The IMF did its job by managing a system of fixed exchange rates geared to the dollar and gold, while the World Bank provided loans, and the GATT signatories negotiated reciprocal reductions in tariffs. But this simple division of labor broke down when the United States stopped converting dollars for gold at a fixed rate--leading eventually to floating exchange rates--and when the rise of multinationals undermined the older emphasis on autonomous domestic growth within a system of fixed rates and managed trade.
Over the past 20 years, the World Bank has continued to target poor economies--in fact, its spending on education, health nutrition, and other social programs has actually risen 20 percent. The IMF has continued to worry about monetary instability and to act as a bank of last resort when crises have occurred. And GATT has continued to bind countries to a common trading system. But each of these institutions has become increasingly devoted to integrating developing countries into the new world market system.
Left-wing critics of these institutions have labeled them and their officials tools of the multinational corporations, but that reduces a complex process of ideological adaptation to personal corruption. The leaders of these institutions have become champions not of the multinationals, but of a neoclassical economics that ultimately reflects the growth of a new integrated market. This neoclassical approach--dubbed the "Washington Consensus"--ties economic growth to the triumph of market forces through deregulation and privatization. It owes its popularity to the seeming success of the Reagan and Thatcher administrations and to the fall of Soviet-style communism--the epitome of protectionism. By making "structural adjustment" loans to countries conditional upon their acceptance of neoclassical directives, or by insisting on the elimination of any trade or investment barriers, the IMF, WTO, and World Bank officials have believed they were promoting a new prosperity that would lift up both rich and poor.
Of course, they have, in effect, imposed upon less-developed countries an economic strategy that is at best appropriate to the most developed. Those less-developed countries that have dramatically improved their lot--from nineteenth-century America to post-World War II South Korea--have carefully managed their trade and investment. Those that have opened the door wide to currency speculators have landed quickly on their behinds. Thus, during the 1990s, the IMF and World Bank helped spawn spectacular catastrophes in Asia, Latin America, and Eastern Europe. These disasters have finally brought a public backlash not only in the countries themselves but in Europe and the United States.
As the battle over these institutions heats up, at least five different positions will be represented in Congress and the Clinton administration and among the public. They are:
Right-wing isolationists: Pat Buchanan and his followers want the United States to withdraw from the United Nations, North Atlantic Treaty Organization, IMF, and World Bank. They want to slap tariffs on goods that threaten jobs, and curtail immigration. They represent the re-emergence of a conservative isolationism that was temporarily displaced during the Cold War. Supporters of this position include the small manufacturers represented by the U.S. Business and Industrial Council and members of some industrial unions and the Teamsters.
Neoclassical conservatives: The Republican leadership in Congress, the conservative think tanks, and the majority of the congressionally appointed Meltzer Commission embrace wholeheartedly the agenda of neoclassical economics. They support the IMF, WTO, and World Bank as agents of deregulation and privatization, but they are wary of the IMF and World Bank carrying out their historic roles as, respectively, lender of last resort and development agency. They want to curtail the loan activities of the IMF and turn the World Bank into a minor charitable organization that gives grants to the deserving poor.
Neoliberal internationalists: Treasury Secretary Larry Summers, congressional Democrats aligned with the Democratic Leadership Council, World Bank President James Wolfensohn, and the economists from the Brookings Institution and the Institute for International Economics favor modest changes in the international institutions. They want the WTO to become more "transparent." They want the IMF to be more cautious in prescribing high interest rates for countries on the brink of insolvency, and they would like the World Bank to focus more funds on poverty and AIDS. But they reject significant changes in the IMF's and World Bank's neoclassical structural adjustment strategy, and they oppose the inclusion of labor and environmental conditions in trade agreements.
Progressive internationalists: Former World Bank chief economist Joseph Stiglitz, the leadership of the AFL-CIO, and House Minority Leader Richard Gephardt favor reforming rather than withdrawing from the international institutions. They want the IMF and World Bank to abandon their doctrinaire neoclassicism in favor of the older neoKeynesianism that encourages managed national development. They favor measures like a Tobin tax on speculative currency transactions or even a new Bretton Woods agreement to regulate exchange rates. They want the WTO to allow individual countries to adopt labor and environmental standards in their trade relations or gradually to incorporate them into agreements and treaties. These standards, they argue, would not penalize poor countries per se, but only countries that actively prevent freedom of association and encourage child and forced labor.
Left-wing abolitionists: Many of the protestors who came to Washington last month favored "nixing" rather than "fixing" the IMF, World Bank, and WTO. Armed with anecdotes about oil pipelines in Chad, they focused on the dark side of these institutions, including the relatively benign World Bank. In a similar vein, some labor leaders favor outright withdrawal from the WTO or want to impose conditions for America's participation that would, in effect, force poorer countries to withdraw. For instance, the United Steelworkers demands the WTO require that when a nation with a higher standard of living trades with a nation with a lower standard of living, the prices of goods reflect those of the former. That's a fancy kind of protectionism.
Of these positions, only the progressive internationalists' adequately reflects what is positive and negative about the IMF, World Bank, and WTO. The right-wing isolationists and the left-wing abolitionists fail to see any positive role that these institutions play, while the neoclassical conservatives and the neoliberal internationalists fail to recognize how destructive they can be. The neoliberals simply dismissed the message of the protestors in Washington. Said Fred Bergsten, the director of the Institute for International Economics, "If you go out and ask those protesters in the streets today what the IMF does, I doubt 1 percent of them would have been able to tell you." As someone who attended the rallies and talked to demonstrators, I can confidently assert that Bergsten was wrong.
But while it is easy to distinguish the different approaches, it is not easy to apply them to a particular case. The next great battle is over whether the United States should grant permanent normal trading relations (PNTR) to China. Even if the United States were to deny PNTR to the Chinese, China would likely join the WTO anyway, via a two-thirds vote. The administration claims that the United States would then suffer the worst of all possible deals: China would be in the WTO, but by denying most favored nation status to China, American businesses would miss out on the concessions that China made in order to gain entry. Labor critics of China respond that if the United States were to continue granting China most favored nation status on an annual basis, the United States could gain all the benefits of China's entry into the WTO but retain the ability to pressure China unilaterally to democratize.
But the vote in Congress will still be a referendum on whether China should be in the WTO. The disadvantages have been clearly stated by the AFL-CIO and its coalition partners: As a WTO member, the current Chinese government could block attempts to incorporate labor and environmental standards into the WTO's trade rules. But there is also an advantage to Chinese membership: The historic purpose of GATT and the WTO has been to draw the world's economies into a web of commerce from which they would be reluctant to extricate themselves. If China were to join the WTO, it would become entangled in commercial commitments that it might be unwilling to risk by aggression in Asia or by massive internal repression. And the pressure on China would not be coming unilaterally from the United States; therefore, it would not be so easy for the Chinese to dismiss as a remnant of Cold War hostility.
But more important than whether China gets normal trade status this year is the question of who guides U.S. policy in coming years--the neoliberal internationalists presently in charge, the neoclassical conservatives waiting in the wings, or the progressive internationalists. If the neoliberals or conservatives are in charge, it won't matter much whether Congress can vote annually on China's labor and human rights record. If progressives gain a foothold--through pressure from below and Democratic victories in the fall--they will enjoy plenty of leverage on labor and environmental issues regardless of whether China is given permanent normal trade status. ¤
