Essay: Global Finance and Free Trade Assignment
Veronica Mason
502: Global Governance (D02)
Liberty University
Prof. Seagle
April 25th, 2024
Multinational corporations play a crucial role as engines of economic growth, providing
international finance and items to trade. At the end of World War II, policymakers established
one set of intergovernmental organizations to support economic liberalism. The so-called Bretton
Woods institutions – the World Bank, the International Monetary Fund, and to a lesser extent,
the General Agreement on Tariffs and Trade (GATT), now the World Trade Organization, all
have played and continue to play a role in the expansion of economic liberalism (Mingst et al.,
pg. 264, 2022). The World Bank and the International Monetary Fund were formed to help the
postwar recovery and economic prosperity.
The World Bank was initially designed to assist the rebuilding of post-World War II
Europe. It was formally named the International Bank for Reconstruction and Development.
However, in the 1950s, the World Bank changed its top priority from reconstruction to
development. “It now generates capital funds from member-state contributions and borrowing in
international financial markets” (Mingst et al., pg. 265, 2022). One of the principal investments
of the World Bank has been used for infrastructure projects like hydroelectric dams and basic
transportation needs like highways, bridges, and so on. However, the WB also funds the private
sector to continue several economic development projects, especially in the social sector.
The World Bank and the International Monetary Fund (IMF) aim to foster living
standards in the member countries. “Their approaches to achieving this shared goal are
complementary: the IMF focuses on macroeconomic and financial stability while the World
Bank concentrates on long-term economic development and poverty reduction” (IMF, July 12,
2022). The IMF fosters international monetary cooperation, which allows the transaction
between the borrower and the lender, allowing the member countries struggling to receive the
help they need. It promotes high employment and sustainable economic growth and reduces
poverty worldwide. The9IMF's9central role is to ensure the stability of the international monetary
system—the exchange rate and international payment system that enables countries and their
citizens to transact with each other (World Bank, accessed April 22, 2024). Although these two
institutions were created as a political- effort to rebuild the world economy after WWII, there is
much more than they do today as they shifted their focus on developing countries worldwide.
The World Bank’s central focus has shifted from partnering with middle-income
nations on growth-related programs and trade liberalization toward9global poverty
alleviation in recent years. These efforts occur in the world’s poorest countries—mainly
those in Africa—and in9middle-income countries, such as China and India, where the most
disadvantaged people live. According to World Bank data, the sub-Saharan receives most of
the bank’s lending (Masters et al., Oct 12, 2023). In the past few years, the role of the World
Bank has faced many challenges because of the COVID-19 pandemic, the invasion of Russia in
Ukraine, Hamas attacks on Israel, climate change, massive refugee emancipation, and so on.
“Almost eighty years later, it has funded more than twelve thousand projects and expanded
its reach into nearly all of the world’s developing countries” (Masters et al., Oct. 12, 2023).
The international community, which benefits from the institution, realized that the World
Bank cannot fulfill all its promises unless there is some reform as the challenges arise.
The World Bank has impacted the outcome and stability of countries in sub-Saharan
Africa, Southeast Asia, China, India, and many others, which would not survive the
pandemic or climate change if the bank’s benefits weren’t available. The World Bank plays
a critical role in global development. For instance, reconstruction and development goals
have been emphasized in projects such as digitizing health systems in Belarus, reducing air
pollution in Colombia, generating solar power in Pakistan, and so on (Masters et al., Oct.
12, 2023). The World Bank seeks to tackle the many dimensions that cause profound
poverty in certain parts of the world. The institution realizes that to tackle poverty, it is
necessary to look at the region holistically. It also includes assessing health, education,
essential infrastructure services, and technology. The institution believes that “Policymakers
must intensify efforts to grow their economies in a way that creates high-quality jobs and
employment while protecting the most vulnerable” (World Bank, accessed April 25, 2024).
The World Bank and the International Monetary Fund (IMF) are preoccupied with
developing countries' stability and prosperity. For instance, the IMF supports economic
growth by promoting financial stability and monetary cooperation, which are necessary to
improve efficiency, job creation, and monetary well-being. One of the main goals of the IMF is
to discourage policies that could harm the recipient countries, but on the other hand, it is to
encourage free trade among nations. Another primary goal of the IMF is to help member
countries improve their tax collection and buster their public collection; this training is called
Capacity Development and is available upon request and will focus on the country’s most
significant need (IMF, accessed April 25, 2024).
While the construction of the World Bank and International Monetary Fund was
displayed as an unpolitical cause to restore the world economy after WWII, some9people viewed
it as an effort to protect or increase the scope of Western capitalism in the face of a potential
challenge from the Soviet Union and to encourage US interests especially. In the 1980s and
1990s, the policies supported by the institutions inspired in principle by the so-called
“‘Washington Consensus,’ which focused ideologically on promoting free-market economic
policies such as deregulation, privatization, and trade liberalization, as well as targeting
unlimited economic growth, and were implemented primarily through Structural Adjustment
Programmes (SAPs).”
Some argue to this day about the connection and negative impact of the SAPs on the
devastation of African health systems and poor response to the Ebola crises, which are still felt to
this day in that region. Many critics blame the international lending policies for the poor welfare
services of these countries, as they need to focus on repaying their debts instead of investing in
their own social and healthcare systems. Countries such as Guinea, Sierra Leone, and Liberia,
which had received support from international lending policies for over two decades, had to limit
the number of workers in the public sector and consequently suffered when Ebola and other
diseases hit their regions. For instance, according to The Lancet authors, “Liberia9had only 60
doctors before the Ebola outbreak,9Sierra Leone9had 136); they’ve also had to cap wages to a
pitifully low level to meet broader IMF policy directives.” There are many arguments
questioning the actions of the IMF as it seems that the same hand that gives the resources to
these developing countries is the same hand that takes away their power to take care of their
people where there is the most need. The same money that helped the country for one moment is
the same money that will enslave the countries for years to come until the debt is paid. Without
assets to fund essential infrastructure, health facilities are left falling apart, sometimes without
access to water or electricity, and utterly untrained for complex emergencies” (Woodford,
accessed April 25, 2024).
Today, many poor developing countries are under tremendous pressure as they see the
impact of international loan policies on their regions. Critics believe that organizations like the
IMF should forgive, especially countries that are highly impacted by the lack of a stable health
system and social assistance. The G20 urged organizations, like the IMF, to forgive debts and
relax the spending restrictions on those countries, especially those affected by Ebola. “The
problem is, the IMF requires cuts to the same public systems that could respond to a health crisis
before it sweeps across the country” (Woodford, accessed April 25, 2024).
Among the complaints that critics have about the legitimacy of the World Bank and IMF
is the fact that they believe it was created to enlarge the United States' influence in the world.
The United States is among the highest investors in these institutions and is also where the banks
are located. There are many doubts about the real reason why these institutions were formed if it
was just so the U.S. could have a way to control the world economy through this lending
financial system. With that in mind, many institutions like the so-called BRICS have been
created. BRICS refers to the collaboration of countries like Brazil, Russia, India, China, and
South Africa. Formally called the New Development Bank (NDB), the BRICS grants equal
voting power to each member country. “Its purpose is to support public and private projects
through loans, guarantees, and equity participation to all BRICS members” (Mingst et al., 2022).
China has also invested in one of those smaller alternatives and multilateral institutions,
like the Asian Infrastructure Investment Bank (AIIB). The Chinese government heavily funds
both BRICS and AIIB. In 2015, the financial institution had 45 regional members and 37
nonregional. Canada, Germany, and the United Kingdom were included, but not the United
States or Japan. One of the bank's targets is to support projects in emerging-country markets,
including China’s Belt and Road Initiative. Loans stimulate long-term growth by investing in
diverse energy, transportation, and water-related factors. The bank also approved 20 billion in
loans by 2020, which helped many countries hit by the pandemic the following year. In addition,
AIIB formed a Crisis Recovery Facility to assist states in responding to the economic heat from
the COVID-19 pandemic (Mingst et al., April 25, 2022, pg.267)
Critics also have arguments about the voting structure of the IMF and World Bank. The
fact that the principal donors have guaranteed voting power raises significant questions. The fact
that the United States is the major donor and the institution is in the United States makes the
arguments even more prominent. In addition to the U.S., the European Union, Canada, and Japan
are among the principal donors. “Reformists believe a more representative voting structure might
lead to a fairer system that promotes different policies” (Mingst et al., April 25th, 2022, pg. 268).
Conversely, China is the primary financial contributor to the AIIB and BRICS countries;
however, it has no veto power. On the other hand, the IMF and the World Bank.
Some critics believe that the IMF and World Bank have invested so much in private
international capital and financial return through dams and power plants that they have forgotten
the disadvantaged groups of society, such as women, the unskilled, and the weak. On the other
hand, economic liberalism causes financial institutions to promote too many liberal ideas, such
as gender equality, climate change agenda, and so on. Liberalists accuse the institutions of
forgetting their purpose of promoting market liberalization (Mingst et al., April 25, 2022, pg.
268).
According to Rodrik, “International economic integration is based on the idea of a world
in which markets for goods, services, and factors of production are perfectly integrated (pg. 10,
2000).” He also recognizes that international institutions are far from this design that was
dreamed of reconstructing Europe and the rest of the world economy after World War II. Though
some blockades of trade and capital flows have decreased in the past decades, many barriers are
still present, not allowing them to come through. The truth is that national borders separate
political and legal jurisdictions between countries, and those transactions are costly and subject
to political and legal domestic jurisdictions. The transactions between two different national
systems are slow and way more complicated than just a domestic procedure. The integration
between two national government systems is much slower and can cause different blockades as
they deal with more than just willingness; they also deal with other cultures and view systems of
government. As Rodrick states, “If we want highly participatory political regimes, we must
choose between the nation-state and international economic integration. If we're going to keep
the nation-state, we must choose between mass politics and global economic integration” (pg.
2000).
In a perfect world, let’s say that national jurisdictions would not interfere with
international trade and capital, goods, and services. National governments would still have power
inside the supernational jurisdictions, but the effects of the borders would be minimal. An idea of
a global federalism system where national systems do not interfere with the federal system but
are still accountable to each other. A similar federal system that the United States operates, “the
presence of a national constitution, national government, and a federal judiciary ensures that
markets are truly national” (Rodrick, pg. 6, 2000). Global federalism is not the only answer, but
it is a good option as more prosperous nations have grown from this accountability system.
Another option would be a nation-state system, in which national states would cooperate rather
than compete against each other. To pursue policies that benefit all and attract trade and capital
flows for everyone.
Trade is a present Bible theme and part of our nature. Many of our forefathers in the
Bible were directed by God to trade, and consequently, they prospered like Abraham and Israel.
Trade is part of man's nature as they plan, aspire, manage, and build relationships (Horne, June
28, 2021). Even more men will thrive from working with one another. As the wisest man in the
Bible said, in Proverbs 11:24-26, “One gives freely, yet grows all the richer; another withholds
what he should give, and only suffers want. Whoever brings blessing will be enriched, and one
who waters will be watered. The people curse him who holds back grain, but a blessing is on the
head of him who sells it." (BibleGateway, accessed April 27, 2024).
Source:
Rodrik, D. (2000). How Far Will International Economic Integration Go? The Journal of
Economic Perspectives, 14(1), 177–186. http://www.jstor.org/stable/2647061
IMF capacity development. IMF. (2022a, November 11).
https://www.imf.org/en/About/Factsheets/imf-capacity-development
Horne, M. (2021, June 28). Made to trade: What the Bible teaches about exchange. The
Christian Post. https://www.christianpost.com/news/made-to-trade-what-the-bible-teaches-
about-exchange.html/
Masters, J., Berman, N., & Chatzky, A. (2023, October 12). The World Bank Group’s Role in
Global Development. Council on Foreign Relations.
https://www.cfr.org/backgrounder/world-bank-groups-role-global-development
Mingst, K. A., McKibben, H. E., & Snyder, J. L. (2022). Essential readings in world politics.
W.W. Norton & Company.
Proverbs 11:24-26 NIV - - bible gateway. (n.d.). https://www.biblegateway.com/passage/?
search=Proverbs%2B11%3A24-26&version=NIV
The IMF and the World Bank. IMF. (2022, July 12).
https://www.imf.org/en/About/Factsheets/Sheets/2022/IMF-World-Bank-New
The World Bank Group and the International Monetary Fund (IMF). World Bank. (n.d.).
https://www.worldbank.org/en/about/history/the-world-bank-group-and-the-imf
Woodford, C. (2015, February 3). The IMF’s role in the ebola outbreak. Bretton Woods Project.
https://www.brettonwoodsproject.org/2015/02/imfs-role-ebola-outbreak/
