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Global Governance

Global governance became more important at the end of the Cold War
o International organizations such as UN were expected to guide state formation, and the formation of

the New World Order

Accelerated globalization became the new trend and the question of how to regulate the world

economy arose
o Interdependence of states to solve a growing number of problems
Global governance
o collection of governance-related activities, rules and mechanisms, formal and informal, existing at a

variety of levels in the world today (Karns and Mingst 2009)

Problem-solving and decision-making arrangements that facilitate coordination and rule at the global
Overlap between various configurations of world politics
International anarchy
Absence of a supranational authority to regulate states
States are individual sovereign entities, relying only on themselves for survival and

International system is characterized by conflict and dynamism
Balance of power discourages states from pursuing aggressive ambitions: minimize

threat of war rather than maximize power

Global hegemony
Hierarchy of states in terms of unequal military, economic, and ideological resources

and capacities
Powerful states able to impose their will
World government
Relies on the social contract theory
Considered unrealistic because there is no discernible incentive for people or states to

give up sovereignty to a global order

Undesirable because (1) creates prospect of unchecked world power, (2) local or
regional allegiances will always remain stronger, (3) difficult to place democratic
accountability, (4) problems such as war, global poverty, environmental degradation

can be tackled without a global state

Management of global policies in the absence of a central government
States voluntarily enter into this agreement and cooperate on the grounds that it is within

their interest to do so
Cooperation under anarchy

The Bretton Woods System

1944: Bretton Woods agreement was created

o Sought to establish the postwar international economic order through the IMF, World Bank, and
GATT (later replaced by WTO)
Bretton Woods agreement negotiated just before the end of the Second World War
o Economics is the most obvious area of interdependence among states
o States did not desire to return to economic instability and chaos which characterized the previous

Sought to establish a framework of norms, rules, and understandings that enabled states to cooperate

over economic matters and avoid the pitfalls of welfarism and protectionism
Based on liberal economic theories, especially the virtues of an open and competitive international
Classical political economic believes that unregulated market competition tends toward long-

term equilibrium
Economy works best when left alone by the government/governing institutions
However, institutional arrangements were necessary to police the international economy and
ensure stability
Inversely, Bretton Woods was created due to the fear of an unregulated international

Embedded liberalism: Keynesian idea that markets had to be managed, through fiscal
policy (government spending and taxation), the framework of which was to be

extended to an international economy

Keynes proposed the construction of a global bank, the International Clearing Union,

which would issue its own currency, the bancor

Rejection of this proposal by the US because its interests will be affected as the
worlds leading creditor country: no limits were placed on the surpluses that
successful exporters could accumulate and that the entire burden for addressing
balance-of-payments deficits was placed on debtor countries
Introduced structural inequalities and imbalances

Bretton Woods System

o States met at the UN Monetary and Financial Conference in Bretton Woods, New Hampshire in order

to formulate the institutional architecture

Establishment of three new bodies
International Monetary Fund
New monetary order to maintain stable exchange rates through fixing all currencies

to the value of the US dollar (currency anchor)

US dollar being convertible to gold at a rate of $35 per ounce
Facilitate international cooperation through removal of foreign exchange restrictions,
stabilization of exchange rates (fixed but adaptable, based on gold exchange standard

with US dollar as anchor), facilitating a multilateral payment system

Acted as currency buffer, granting of loans to countries with balance-of-payment

International Bank for Reconstruction and Development, better known as the World Bank
New financial order
Provide loans for countries in need of reconstruction and development
General Agreement on Tariffs and Trade, which was replaced by the World Trade

New trading order
Rather than an international organization, more of a multilateral agreement
Advance the cause of free trade by bringing down tariff levels
However, we can also see that the establishment of this system was not propelled primarily by mutual
interests in a multilateral global economy
USA emerged from the WWII as the predominant military and economic power

Negotiations initiated by the US and took place in their territory, was the dominant force in

most of the outcomes of the negotiations

(1) due to the failure of Roosevelts New Deal, US needed to ensure that domestic growth

levels could be sustained in the postwar period

Creation of an open and stable international economic system
(2) growing awareness of the threat posed by the Soviet Union and the spread of communism
For two decades, it appeared to be a success: remarkably long period of sustained economic growth
However, there have been differing views regarding the cause of this, some attributing it to
national government efforts to stimulate growth by running permanent budget deficits; some
attributed it to the permanent arms economy in which military expenditure legitimized by
the Cold War was seen as the primary motor for growth; some saw Bretton Woods as the

expression of US hegemony rather than multilateral economic governance

1970s: high inflation led to economic stagnation and rising unemployment rates
US economy especially affected by these, abandoned system of fixed exchange rates in
1971, ending the original Bretton Woods system to that of floating exchange rates
1975: formation of the Group of Seven: USA, France, Germany, the UK, Japan, Italy, Canada
Russia included in 1997, became G-8
Ensure the overall coordination of the system of global economic governance
Over time, became less effective largely because of the advent of accelerated

globalization together with the shift from managerialism to free-market thinking

Became a focus of anti-globalization protest
Hampered by its need to rely on consensus-building
Distribution of power shifted towards emerging economies
Embedded liberalism gave way to neoliberalism
Three bodies functions were altered
Focused on lending to the developing world and (post-Cold War) transition countries
Conditionalities attached to them, which required recipient countries to introduce
structural adjustment programs; application of a one size fits all neoliberal template
based on inflation control, liberalization of trade and flow of capital, liberalization of
banking system, reduction of government spending except debt repayment,

privatization of assets that could be sold to foreign investors

2006: greater role of developing countries in decision-making processes due to
criticisms that its decisions were primarily US or Western-based; 2007-09 crisis

transformed its objectives to global financial surveillance to prevent crises


Redistributive function; increasingly focused on developing and transition countries

as well
Low interest loans to support major investment projects, technical assistance
Primarily large infrastructure projects, shift towards projects dealing with basic needs
and what was perceived as the underlying cause of poverty: population control,

education, human rights

1982: appointment of Ann Krueger as chief economist led to emphasis on
deregulation and privatization, export-led growth rather than protectionism led to an

increase in poverty
However, it has responded to criticism through sustainable development, emphasis
on good governance and anti-corruption policies, negotiations with recipient


countries of poverty reduction programs and increase in their voting power

1993: Uruguay Round concluded with the proposal to establish the WTO, which
eventually replaced the GATT

Response to the changing imperatives of the international trading system:

neoliberalism and globalization, advance the cause of free trades

Dispute settlement system changed: rejected only if decision is opposed by all

members of the Dispute Settlement Body to which all member states belong
Criticisms include a bias towards developed over developing countries, which have
no permanent representation, and lack of transparency and accountability especially

in the case of developed countries

Reformation of the Bretton Woods System
1980s: financial and economic crises became frequent and more serious
Failure of the global economic governance system to provide adequate warnings by

highlighting key instabilities and crisis tendencies

2007-09: global financial crisis
Severe downturn in the world economy
Affected virtually every country in the world
Originated in the US instead of emerging or transition economies
Reforms proposed included changing voting allocations and decision-making
processes to increase political influence of developing countries; new global
architecture on a more inclusive basis (cosmopolitan democracy); for anti-capitalists,
substantial redistribution of wealth and power both within national societies and

within the global economy

Predominant response afterwards has been to do nothing at all (business as usual)
G-20: coordinating swift action at the domestic level to salvage the banking system
and push through Keynesian-style reflationary policies; changing balance of power
within the world economy with a shift away from US-centrism to the BRICs group of
countries: China, India, Russia and Brazil
o Ensures that any change in global economic governance will be gradual and

2009: creation of the Financial Stability Board as the fourth pillar of the architecture
of global economic governance
o Coordinate at the global level the work of national financial authorities and
international standard-setting bodies and to promote the implementation of
effective regulatory, supervisory and other financial sector policies