To start understanding what’s wrong with the international financial institutions (IFIs), we need to look at why we actually need economies to function. The most important economic issues to most people are whether they are able to get decent jobs and whether they are able to lift themselves out of poverty.
In writing the rules for economies, the International Monetary Fund (IMF) and WTO (World Trade Organization) are major proponents of neoliberal ideology. That ideology is based on the theory that slashing government spending, reducing tariffs, privatizing public resources, and promoting corporate investment will result in higher economic growth, and that this will eventually result in a reduction in poverty because a rising tide lifts all boats. This contrasts with more progressive viewpoints that focus on reducing inequality by investing in health care, education, and opportunities for the poor.
The mandate of the IMF is to help countries overcome short-term ﬁnancial difﬁculties by giving out loans. However, these loans are only provided if countries restructure their economies. That is, they have to adhere to these neoliberal economic policies, like cutting government spending in areas such as education and health care, to regain what is called “ﬁscal discipline,” which means not spending more money than you are taking in. The problem is that the result in many countries has actually been a reduction of growth and development – stagnant wages, more unemployment. Thus, while the creditors are bailed out by the IMF, often the borrowing country is unable to repay the loan, resulting in an endless cycle of impoverishment and indebtedness.
Similarly, the World Trade Organization develops and enforces rules for trade and investment. It favors rights for corporations to trade over the rights of governments and peoples to develop healthy and sustainable economies. We know that trade can be an engine for growth if used strategically by a country; but trade can also be a vehicle to boost corporate proﬁts that actually limits the ability of local economies to develop, and pits workers against each other in a race to the bottom.
So the evidence shows that the extreme neoliberal model has actually failed to produce economic growth and has exacerbated inequality. It’s causing the biggest distribution of wealth – away from the majority of people and into the pockets of big corporations – in the history of the modern world. However, no matter what evidence neoliberals are shown to the contrary, they still promote this model because it’s in the interest of the corporations that are driving their agendas.
Fortunately, there’s a lot of questioning of neoliberalism now. Latin America and Asia are two regions that have largely paid off their loans and liberated themselves from the IMF in the last decade or two, and that has had a huge impact. Asia experienced a severe economic crisis in 1997; countries like Malaysia that broke with the IMF and took care of their domestic economy before paying off foreign investors actually did better than the ones that followed the IMF’s economic advice. Since then, much of Asia has decided that they’re never going to be subject to this foreign economic intervention again, and they’ve built up tremendous economic reserves so they don’t ever have to go ask for a bailout. It’s been a very good thing. They’ve had fairly decent economic growth over the last 15 years or so, and lifted millions and millions of people out of poverty.
We’ve seen big victories within our hemisphere as well. One was the defeat of the proposed Free Trade Area of the Americas in the early 2000s. Another example was in 2001 when Argentina broke with the IMF and told them it wasn’t going to pay foreign investors before investing in its own domestic economy. In the last 10 years, Argentina has been one of the fastest growing economies in Latin America and has lifted 10 million people out of poverty because of that faster growth. Similarly, in spite of the fact that Venezuela has been quite hard hit by the global recession, they’ve lowered their poverty rate by more than half and extreme poverty by even more than that in the last decade. In fact, during the 80’s and 90’s, most of the region experienced economic stagnation under IMF agreements. But now, most of Latin America has paid off its debts to the IMF, and is no longer under its constraints. The people have elected leftist governments that focus on building relationships among countries in the region, rather than being too dependent on the United States. Now growth is rebounding, unemployment has been reduced, and countries have made great strides in reducing poverty.
Unfortunately, many African countries are still subjected to IMF policies and are being left behind. And now, the IMF was put in charge of managing the bailouts of many European countries, and they are being subjected to austerity programs, which are wreaking havoc on developed and developing countries alike.
Globally we have a very important movement to get outstanding debt to the IMF cancelled, called the Jubilee movement. They’ve achieved important victories for many poor countries by freeing poor nations to be able to use their own resources for their real economic needs instead of paying the IMF. Unfortunately, we don’t actually have a movement focused on challenging the IMF’s fundamental power, and I think we need to create that. It’s not just about debt cancellation, but taking the IMF out of the business of running economies around the world.
And at a time when countries are still suffering from the global crises, and governments are imposing “austerity” instead of spurring development through investment, we need a global movement for ﬁscal stimulus – for the idea that government funds should be invested where the public will beneﬁt the most, like health care and education and ensuring food security. Unemployment beneﬁts create far more jobs than tax breaks, because those who receive these beneﬁts generally have to spend their money immediately.
Economists know this; when politicians argue in favor of tax cuts to spur growth, they are just arguing in the interests of corporate proﬁt, not reﬂected in any economic reality. Unfortunately, because many people in progressive movements don’t understand how important growth is to poverty reduction, we often spend more time ﬁghting over speciﬁc cuts or programs rather than working together to demand government investments that would beneﬁt the entire economy.
Another key global justice campaign is to stop the expansion of the WTO agreement through what’s called the “Doha Round” of negotiations, and to roll back existing WTO rules that limit governments’ abilities to manage crises. Fortunately there’s a movement focused on this, the Our World Is Not for Sale global network. It’s comprised of organizations from 50 different countries. After nearly a decade of struggle, it looks like we have a chance of stopping the expansion of the WTO again this year – permanently this time. The solution is not to have no global trade rules; we need to have rules disciplining corporate behavior. But we need a new institution run with the purpose of using trade to promote growth, jobs, and sustainable development, not just increasing trade.
To bring it home to the United States, we have a national coalition called the Citizens’ Trade Campaign that’s composed of grassroots movements from across the country that would be affected by trade agreements in a negative way, including farmers’ unions, environmental groups, labor unions, student movements, progressive people of faith, consumer advocacy groups.
As movements for justice, we need to work to bridge the efforts among those challenging the overarching institutions that design the architecture of the global economy, and those working for economic empowerment on the local scale who are grounded in the lived experiences of those affected by the institutions. How can we empower the people who are actually affected by the issues to be the advocates and spokespeople? How can we ensure that those working on economic justice on the local level have access to information so that they can advocate for their interests in the bigger scheme of things? We need to ensure that we don’t just convey the right information, which is key, but also that we connect the bigger picture economic struggles to the problems people experience in their communities, in a way that people can understand and really feel motivated to come together and work to improve people’s lives.
Inspired? Here are a few suggestions for getting involved!
- Challenge yourself to make conversations about the workings of international ﬁnancial institutions interesting and useful. Global Exchange’s Global Econ 101 webpage (www.globalexchange.org/resources/econ101) and the International Forum on Globalization (www.ifg.org) can help.
- Get involved with campaigns such as those to halt the expansion of the World Trade Organization (WTO), stop new trade agreements and renegotiate existing ones, end Fast Track, and cancel global debt:
- Help build economic justice and power for workers. Learn about and engage in campaigns and organizing efforts through these organizations:
- Work for US policy that supports women around the world and their families. Learn how through Women Thrive Worldwide (www.womenthrive.org/index.php?option=com_content&task=view&id=1117&Itemid=196).
Discover more ideas and download the entire Birthing Justice series here.