Global economic governance is a developing framework of coordination and management of the global economy, which includes the promotion of international trade, the creation of financial stability and the supporting of the economic development of states. It is facilitated by the Bretton Woods institutions (the IMF, WTO and World Bank), the G7/8 and increasingly the G20. There has been extensive debate regarding their effectiveness in recent years, particularly in the wake of the 2008 Financial Crash, but ultimately it can be argued while they have numerous limitations, global economic institutions have been successful to a certain extent in maintaining stability in the global system.
The success of global economic governance is apparent in the role of institutions such as the WTO, in the international system. There is substantive evidence of the successes of the IMF, World Bank and WTO in the encouragement of free trade and economic prosperity, indicating the advance of the free market Washington Consensus. Neo-liberals are predominantly in favour of economic governance, as in an economically interdependent system, it is recognised there is a mutual interest in upholding agreed norms and regulations. The WTO works well in imposing penalties on states that break the international rules of trade with a significant membership of 164 countries, and is expanding its outreach with both China and Russia joining in recent years. During the economic recession beginning in 2008, the WTO successfully discouraged states from resorting to tariffs and subsidies in order to protect their economies. The WTO has been effective to a certain extent in the settling of trade disputes, with binding rulings it can impose trade sanctions on states which disregard its rulings. An example of this would be in 2002, where the US withdrew its 30% steel tariff, after the WTO deemed it illegal and authorised the EU to respond with $2 billion worth of tariffs. The WTO is an example of an institution which helps to regulate and promote international trade and provide stability to the global financial system, showing how global economic governance has proved relatively effective in recent years.
Notwithstanding, the WTO has some limitations in providing effective global economic governance, focusing exclusively on increasing free trade, deemed by some at the expense of worker’s rights, child labour and the environment. The failure of the Doha Round is a pertinent example where the WTO has failed to open developed countries’ markets to agricultural products of the Global South, further reinforcing inequality and preventing growth. The WTO has been challenged for its perceived disregard for environmental protection (sustainable development). The lack of democracy is also a criticism of the WTO; decision-making is highly biased to states which have a large representation in Geneva. Additionally, the shift to isolationism and retrenchment by the Trump administration has led to the increased scepticism of the USA – the economic hegemon – towards global economic institutions and trade agreements. Trump’s March 2018 decision to massively re-increase steel tariffs, has wider repercussions as a leading WTO member, as well as the plan to ‘tear up’ the 2016 TPP, indicating how economic institutions are being manipulated as part of wider great power politics, not for the maintaining of international trading relationships. This shows how the effectiveness of global economic governance has been reduced; in organisations with a comprehensive membership like the WTO a consensus which is beneficial to all parties is difficult and frequently slow to reach.
Alternatively, the success of global economic governance can be argued with respect to global financial stability and the IMF, G7/8 and G20. The G20 has emerged as a more influential actor in economic global governance, in that it is less exclusive than the G8 and less comprehensive than the WTO. The IMF demonstrates a success of global economic governance, with a focus on long-term development and offering states financial advice – currently encouraging fiscal reform in Jordan and recommending a diversification of the Mexican economy in line with rising oil prices. The IMF has responded to financial crises such as the 1997 Asian financial crisis and the emergency lending to Brazil (1998) and Argentina (2000). It has also worked well by providing loans to Russia and South Korea, helping to stabilise their economies. The 2009 London G20 summit showed how leading countries in the world – in spite of their differences – agreed to a large number of shared objectives to restore global confidence in the world economy in the aftermath of the 2008 Financial Crash. For instance, the G20 agreed to increase the funding to the IMF by $750 billion and not to introduce any trade barriers for the coming year. This evidence shows how intergovernmental economic forums and institutions have been successful in numerous ways, with the promotion and enforcement of economic regulation fostering international trade in recent years in a way that was not achieved before.
In spite of this, the IMF, G7/8 and G20 are flawed in certain respects. Most notably, IMF surveillance drastically failed to anticipate the 2008 Financial Crash or the subsequent Eurozone Crisis. There is a perceived growing neo-liberal agenda with organisations like the IMF consistently promoting cooperation, though only dominant, economically advanced states reap the benefits of this interdependence. For instance, the policy of ‘fiscal austerity’ means that the IMF only permits for countries to get loans if they cut government spending and raise domestic taxes (eg. in Argentina). This affects states which are too underdeveloped to be able to play on a global scale, unlike the dominant economies of the USA or China. Furthermore, the policies of the IMF are dictated by the US, as it is the only country with the veto power. Also, following the 2008 Eurozone Crisis, ‘shock treatment’ (according to Naomi Klein) which consisted of the liberalisation of Greek economy, imposition of strict austerity and the selling of state assets was widely repudiated. Additionally, the G7 has been criticised due to its lack of binding power, and avoidance of controversial issues e.g. the failure to discuss tackling ISIS or the Greek Debt Crisis at Elmau in 2015. It has been argued that the G7 shows the neo-colonial division of the world, and reinforces the Global South’s peripheral status. Conversely, the G20 has been criticised for its lack of transparency and shows how increasingly global economic governance is carried out in a manner which focuses on a Realist state-centred approach to global politics. This highlights the flaws of global economic governance in the current system.
The effectiveness of global economic governance can be measured by the successes of the World Bank. Free market reforms have enabled many developing countries to drastically increase their growth rates by engaging in global trade; in 2014, the growth rates in Sub-Saharan Africa were 4.5%, with notable examples such as Ethiopia being 8.2% and Tanzania being 7.2%. The World Bank’s Highly Indebted Poor Countries Initiative is an example of the effective use of economic governance for global financial stability, with the elimination of debts encouraging growth. Additionally, Structural Adjustment programmes have proved effective in states such as Burkina Faso (which has diversified away from cotton dependency) and Ghana (moving away from rice production to gold and cocoa where it has considerable advantages as an exporter). Following certain criticisms there has been a greater emphasis on World Bank projects focusing on human development rather than purely the imposition of free market reforms. With an annual budget of $9 billion the World Bank is investing in 71 countries, for example, it has helped to achieve gender equality in the primary sector in Bangladesh and is working to reduce the figure of the poorest 5 million children who still do not attend school there. This indicates how the commitment to both neo-Liberal policies, and broader social and economic targets has been successful for creating stability in the global financial system.
However, global economic governance has also received criticism in a wider sense for the promotion of inequality both within and between states, damaging human rights, the lack of transparency and democratic accountability, and for being an instrument of transnational corporations and international banking conglomerates. Critics of the World Bank like Joseph Stiglitz argue that the 15.8% share of voting rights is a clear indicator of US domination in economic supranational institutions. Moreover, neo-Marxist theorist Immanuel Wallerstein’s World Systems theory outlines how the Washington Consensus promotes inequality; he claims that ‘core’ nations such as the US and the UK create a dependency for nations on them – these nations being ‘Periphery’ actors. The World Bank is frequently criticised for keeping developing countries in this peripheral status through structural adjustment programmes, which reinforce the north-south divide; it is argued that these programmes have an adverse effect by opening developing markets to neo-colonial exploitation. This indicates how global economic governance frequently proves beneficial primarily for the economically developed states and exploitative of developing states.
In conclusion, it can be argued that global economic governance is effective to a certain extent; polycentric decision making has helped to alleviate economic crises in recent years. The focus on economic growth through enhancing international trade, in addition to plans for long-term development have shown how increased communication and interconnectedness has helped the global system. Notwithstanding, over-representation of the Global North in the Bretton Woods institutions and the G7/8 and G20 has been argued to have led to the manipulation of the global financial system to be beneficial for developed states, reinforcing the north-south divide and keeping many states in a peripheral status in an exploitative way. However, despite some limitations global economic governance has proved effective and continues to provide stability through dialogue and cooperation in the global system.