As representatives from the IMF, World Bank, and the G20 converged on Washington last week, there was a sense that America may be losing its position as the main guarantor of international order:
As world leaders converge here for their semiannual trek to the capital of what is still the world’s most powerful economy, concern is rising in many quarters that the United States is retreating from global economic leadership just when it is needed most.
Washington’s retreat is not so much by intent, Mr. Subramanian said, but a result of dysfunction and a lack of resources to project economic power the way it once did. Because of tight budgets and competing financial demands, the United States is less able to maintain its economic power, and because of political infighting, it has been unable to formally share it either.
Other experts and historians, however, say too much can be made of the moment. Walter Russell Mead, a professor of foreign affairs at Bard College, noted that the rise of China as an economic force was inevitable, and that its establishment of a rival lending institution was far different from the international behavior of the Soviet Union and communist Chinese during the Cold War.
Then, he said, America’s rivals were trying to destroy and replace the economic order established by the United States and Britain after World War II. Now, emerging powers are emulating it, however imperfectly.
Sure other countries have risen in prominence since America stood as the lone super-power after the Cold War, but has this really resulted in America’s decline? I would argue that building up strong allies to help promote America’s vision of international order–one based on democracy, human rights, economic and defensive interdependence, and more recently environmentally sustainable economic development–was exactly why the U.S. took the lead in setting up the United Nations and the Brenton Woods Institutions (the World Bank, IMF, and GATT).
Therefore, in assessing America’s influence over international order, we should consider how these institutions have evolved. While they were all conceived with the best of intentions, good intentions do not always lead to good outcomes. Have these institutions been able to learn from their mistakes and make meaningful contributions to maintaining international order? Lets consider them on a case by case basis:
The International Monetary Fund (IMF):
The IMF was originally conceived to promote currency stability and help countries overcome short-term balance of payments issues. But as technological advances made the world smaller, the IMF took on a much larger mandate, and began extending loans to help developing countries modernize. The so called “Washington Consensus” linked development loans to “ex-post” (after the fact) conditions such as hitting fiscal targets (reducing the size of government) and liberalizing trade.
While these policies by and large do promote growth in already developed countries, they ignored the historic lessons of the world’s developed countries. Every advanced country relied on some degree of protectionism to cultivate its own industries and government spending to build both physical infrastructure and a skilled workforce as it modernized.
The “Washington Consensus” programs did not allow for policy space based on the historical experiences and current realities in the countries they intended to help. As I have often written, economics–particularly development economics–is highly context-sensitive; the “Washington Consensus” was simply to rigid and narrow-sighted to work.
The “Washington Consensus” was a consensus failure, and left many countries worse off than before they accepted this “help” (see “the lost decade” in Latin America). Thankfully the IMF abandoned this flawed set of policies.
The failure of the Washington Consensus led to IMF to reconsider how it does business–the “conditionality” attached to its loans. Instead of relying on a rigid set of targets a country must meet in order to continue to receive support, the IMF now focuses on pre-set “ex ante” conditionality. If a country has a sound macroeconomic position, it can tap into IMF financing while maintaining the policy space needed to address the needs of its citizens (and ultimately maintain its legitimacy).
The IMF will have to deal with the specter of the Washington Consensus for some time, but going forward it has evolved in meaningful ways.
The World Trade Organization (WTO):
The General Agreement on Tariffs and Trade (GATT) officially became the World Trade Organization (WTO) in 1995. The WTO sets rules for global trade and provides a forum for airing grievances. With membership covering 96.4% of global trade and 96.7% of global GDP, the WTO is unquestionably an important institution.
Critics often argue the WTO is ineffective, but any organization whose stated goal is the resolve international trade disputes is by definition going to be contentious. I would argue that the WTO has helped keep trade disputes trade disputes, and that without it many of these disputes could have ended in armed conflict.
In recent years, international trade news has been dominated by two proposed regional agreements, the trans-pacific partnership (TPP) between the U.S. and Asian economies, and the trans-atlantic trade and investment partnership (TTIP) between the U.S. and Europe.
There is no consensus as to whether regional free trade agreements (FTA) such as these undermine the global free trade movement, or if they are building blocks towards this goal. But one thing is for certain–free trade agreements create winners and losers. The winners tend to be the wealthy who are positioned to benefit from greater market access; the losers tend to be wage earners.
In the context of political dysfunction and simmering class-warfare in America and beyond, it is necessary that policies to transfer some of the gains from the “winners” to protect the “losers” of any FTA are baked into the agreements themselves. The ability of governments to address the inequality and environmental impacts of any FTA will greatly affect its historical legacy.
The United Nations (UN):
The United Nations is arguably the most important of the international institutions. In addition to providing a forum for countries to address one another, the UN also serves a global policy adviser, giving it the strongest normative mandate of any of these organizations.
The Millennium Development Goals (MDGs) are 8 specific goals whose intent is to guide the trajectory of the developing world. The successes of these goals has been uneven–some countries have a great record, while others not so much. As these goals are set to expire at the end of 2015, they are commonly viewed as beneficial but imperfect. Their successors, the Post-2015 Sustainable Development Goals (SDGs), aim to build on their successes while learning from their short-comings.
There are a number of ways the SDGs deviate from the MDGs. For one, they are much more inclusive and consultative. Seen as being drafted behind closed doors by the global elite, the MDGs were hampered from the start. Conversely, the SDGs are being drafted with input from numerous thematic and national consultations with the very people they are intended to benefit.
There is also greater emphasis on the roles of various stakeholders (governments, private sector, NGOs, civil society, and international organizations) with regards to both financing the agenda and being accountable for their operations in the developing world. “Who Will Be Accountable?” highlights these common but differentiated responsibilities, providing general guidelines for holding those who violate the SDGs accountable.
Between the launch of the Post-2015 Development Agenda (the SDGs) and the 2015 UN Climate Conference in Paris (which is expected to result in the first universal global climate treaty), 2015 will prove to be a pivotal year for sustainable human development initiatives.
One area the U.N. has not reformed sufficiently is in promoting global security. Given that security is a necessary precondition for sustainable human development, the significance of this shortcoming cannot be understated.
Nowhere has this problem been more acute than in the Middle East, where armed conflict has left 1 in 4 children out of school, led to immeasurable economic, physical, and psychological damage, and has completely overwhelmed the international humanitarian assistance network. The inability to protect children is especially alarming, as it plants the seeds for future conflicts.
The United Nations needs to respond more decisively against regimes that commit gross human rights violations. The concept of national sovereignty is meant to protect a country from outside invasion, not act as a shield for human rights abusers.
The Responsibility to Protect (R2P) was supposed to put peoples rights before national sovereignty, but it has proven to lack the teeth needed to provide meaningful protection. The need is clear, as I have called for in the past, for the UN General Assembly to have a mechanism for overruling UN Security Council vetoes. Such a reform would give the R2P the power it needs to fulfill its important mandate to prevent / end gross human rights violations.
The World Bank Group (WB):
The World Bank Group is responsible for financing development projects in the developing world. While its existence has been a “net benefit” for developing countries, the World Bank has had issues enforcing “good governance” standards on its projects, often resulting in adverse consequences for the worlds most vulnerable people:
The World Bank regularly fails to enforce its own rules protecting people in the path of the projects it bankrolls, with devastating consequences for some of the poorest and most vulnerable people on the planet, a new investigation by the International Consortium of Investigative Journalists, The Huffington Post and more than 20 other media partners have found.
The investigation’s key findings include:
- Over the last decade, projects funded by the World Bank have physically or economically displaced an estimated 3.4 million people, forcing them from their homes, taking their land or damaging their livelihoods.
- The World Bank has regularly failed to live up to its own policies for protecting people harmed by projects it finances.
- The World Bank and its private-sector lending arm, the International Finance Corp., have financed governments and companies accused of human rights violations such as rape, murder and torture. In some cases the lenders have continued to bankroll these borrowers after evidence of abuses emerged.
- Ethiopian authorities diverted millions of dollars from a World Bank-supported project to fund a violent campaign of mass evictions, according to former officials who carried out the forced resettlement program.
- From 2009 to 2013, World Bank Group lenders pumped $50 billion into projects graded the highest risk for “irreversible or unprecedented” social or environmental impacts — more than twice as much as the previous five-year span.
Days after ICIJ informed the World Bank that the team’s investigation had found “systemic gaps” in the bank’s enforcement of its “social safeguard” rules, World Bank Group President Jim Yong Kim acknowledged “major problems” with the bank’s resettlement policies and vowed to seek reforms.
Being a “net benefit” for the developing world is not a high enough standard for the World Bank, it must adopt a “do no harm” principle in all its projects. To achieve this goal, the World Bank should emulate the UN in consulting with those who will be affected by their projects.
The World Bank has an important role to play in promoting the SDGs, but first it must get its own house in order.
Some may point to the recent rise of parallel international organizations such as the Asian Infrastructure Investment Bank (AIIB) and the New Development Bank (NDB) as further signs of the deterioration of an American led international order. Indeed, there are serious governance questions these institutions must address, lest they be counter-productive in the pursuits of promoting peace and eradicating extreme poverty.
It would be most constructive to have the UN promote these values (accountability, good governance, etc.) to emerging international institutions, not the US. The UN has international legitimacy; the same message coming from the UN would likely be much more well received.
US-centric international organizations are free to work with these parallel institutions or not, and their positions can evolve as these new institutions reveal their values through their actions. But as professor Walter Mead aptly points out, these institutions are not challenging America’s Post WWII vision of international order, they are doubling-down on it. As the saying goes, imitation is the greatest form of flattery.