Revision: Global Economy - The North-South Divide
What role in the global economy is played by IMF, World Bank and WTO?
The World Trade Organization (WTO) is an international organization which oversees a number of agreements defining the "rules of trade" between its member states.
The WTO has 2 basic functions:
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A negotiating forum for discussions of new and existing trade rules – WTO decisions are made on a consensus basis, which doesn't necessarily mean that unanimity is found, but that no member finds a decision so unacceptable that they feel they must object.
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A trade dispute settlement body – the WTO has no significant power to enforce the decisions it makes when a member brings a complaint against another. If a decision is not complied with it may authorize "retaliatory measures" but no other enforcement action is available.
The International Monetary Fund (IMF) is the international organization entrusted with overseeing the global financial system by monitoring exchange rates and balance of payments, as well as offering financial and technical assistance when asked. It has 184 member countries and is best known for giving loans to impoverished countries.
The World Bank The World Bank Group is a group of five international organizations responsible for providing finance to countries for purposes of development and poverty reduction, and for encouraging and safeguarding international investment.
How effective are IMF, World Bank and WTO?
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The WTO's lack of powers of enforcement means that economically powerful states such as the USA can essentially ignore rulings against them from complaints brought by the economically weak, as the latter states simply do not have enough political or economical power to hurt US trade enough to force the US to comply with rulings.
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WTO treaties have been accused of a partial and unfair bias toward multinational corporations and wealthy nations.
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Some believe that WTO member states have adopted treaties undemocratically or to the detriment of their citizens or ecologies
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The WTO is claimed to have nudged countries such as China and Russia toward democratic reforms in order to enjoy the benefits of membership.
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The IMF requires countries who wish to take out a loan to follow certain economic policies that are based on liberal economic ideals. This means that any help is conditional. This has led to claims being made that problems in countries who have taken out loans have been made worse by the IMF's involvement. E.g. in Argentina after the IMF issued their loan the economy got much worse. There was an 11% decline in industry and increased unemployment.
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In Niger the loan has been blamed for aggravating the poverty. The conditions imposed meant that the country couldn't focus on producing food. Furthermore the state ended up imposing taxing over 19% on food, meaning that even more people went starving as there wasn't enough food, and what there was wasn't affordable.
They are also criticized for pushing through privatization without setting up critical institutions e.g. courts. This, it is claimed, led to corruption in the former communist countries.
The Asian Tigers actually ignored the IMF's advice and have probably been the most successful NICs in recent years. They nurtured national industries before opening up to globalization.
However in Georgia there was success, as the help that the IMF gave resulted in a 10% decrease in inflation.
The World Bank undermines national sovereignty as it forces countries to change economic policy if they take out a loan.
The World Bank is criticized as being a tool for imposing Western economic policies to promote Western ideals, economies and interests.
It has also been criticized as a form of neocolonialism as it imposes western control over former colonies
It pushes the idea of increasing the amount of MNC investment which can often be detrimental to developing economies as it reduces the states control over development.
Votes are weighted based on share ownership. USA has 16.4% of shares and since all decisions require 85% the US can block any vote alone.
Defenders of the World Bank point out that no country is forced to borrow its money. The Bank provides both loans and grants. Even the loans are charitable since they are given to countries that have no access to international capital markets. Furthermore, the loans, both to poor and middle-income countries, are at below market-value interest rates. The World Bank argues that it can help development more through loans than grants, because money repaid on the loans can then be lent for other projects. Finally, it has made a major effort in recent years to address criticism, particularly regarding the environment and corruption.
What are the Asian Tigers?
They are the most successful Newly Industrializing Countries (NICs) of East Asia.
The four tigers referred to are:
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South Korea
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Taiwan
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Hong Kong
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Singapore
The Tigers didn't follow the principles that the West advocate. South Korea and Taiwan were both militarized, authoritarian states, although they later became democratic after economic success. US spending in East Asia during the cold war benefited their economies. Hong Kong and Singapore are both former British colonies. Although not as militarized as South Korea and Taiwan, they weren't democracies either. They are both more like city-states than nation-states, whose cities became successful ports and financial centers.
The Tigers developed a niche in the market. However the niches they dominated did not rely on one specific product but of product of the same sort of type. They, unlike the unsuccessful former colonies, don't export raw materials but specify in light manufacturing and automobiles.
Specific factors that no longer exist are said to be important factors in their success.
The states began with strong state involvement in their economies. Building them up before they opened them up.
Malaysia and Thailand have progressed well in recent years and have been suggested as potential tigers of the future.
What is neo-colonialism and how important are its effects?
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At the 1961 All African People's Conference held in Cairo neo-colonialism was defined as "the survival of the colonial system in spite of the formal recognition of political independence in emerging countries which become the victims of an indirect and subtle form of domination by political, economic, social, military or technical means"
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Basically the term neo-colonialism implies that former colonizers still control African nations whose rulers are either willing puppets or involuntary subordinate of these powers.
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Because the main trading partners of new independent states were usually their former colonial masters, and the main products were usually those developed under colonialism, as well as the administrative units and territorial borders were those created by Europeans, the idea of neocolonialism came into form
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According to Marxist economists poor countries are satellites of developed nations because their economies were structured to serve them, and their natural resources are exploited to serve them.
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Often the white Europeans, who during the imperialist era held the majority of high skill jobs in colonies, fled the country at the time of independence, leaving a huge gap in technical and administrative skills. This made them dependant on their former colonizers
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Why is the gap between the economic north and south widening?
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The richest 1% of the world's population now receives as much income as the poorest 57%. In 1820 western Europe's per capita income was three times as much as Africa's; by the 1990's it was more that 13 times larger.
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In July 2003 the UN announced that in the 1990s more than 50 countries suffered falling living standards.
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The UN's annual human development report of 2003 said the world had become even more divided between rich and poor.
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The report stated:
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Lack of trade
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Lack of aid / unsuccessfulness or inadequacy of aid
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Abundance of dept
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Failure of international organizations (e.g. IMF, World Bank, WTO) to effectively combat the problem. According to William Finnegan "A recent study found that IMF programs have had overall a negative effect on economic growth in participating countries"
Neo-colonialism – blames the North for exploiting the South e.g. MNCs Governments of many post-colonial states did not function very effectively. In some cases corruption became intolerable, and in other cases governments in an attempt to separate themselves from their former colonizers adopted socialistic ideologies, which were unsuccessful.
Governments of many post-colonial states did not function very effectively. In some cases corruption became intolerable, and in other cases governments in an attempt to separate themselves from their former colonizers adopted socialistic ideologies, which were unsuccessful.
Due to single-crop farming being imposed on some colonies in the imperial era the successor states are now painfully vulnerable to fluctuations in the market prices of those goods such as sugar and coffee. Hence the economies are unstable and due to more effective production methods less raw materials are being bought, which negatively affect these countries' economies.
Majority of LEDCs in Africa and South America – when these colonial or quasi-colonial territories became independent they were unable to follow the paths advocated by the industrially developed countries such as USA, UK and Germany due to a number of factors.
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Result: The Brandt Report's core message (As stated by Heater and Berridge in Intro to International Politics – 92) is that the prosperous North has no cause for complacency. Globalization means that continuing economic debility in the southern hemisphere will at best retard economic activity globally; at worst, it will cause such bitterness amongst the disadvantaged nations as to explode into violent aggression.
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The UN's annual human development report of 2003 stated that to tackle the problem the North needed to tear down trade barriers, dismantle its lavish subsidy regimes, and provide deeper dept relief and double aid. This, they said, would provide the resources for investment in the building blocks of development – health, education, clean water and rural roads.
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