Globalization. The Institutions of Globalization
Globalization, a comprehensive term for the emergence of a global society in which economic, political, environmental, and cultural events in one part of the world quickly come to have significance for people in other parts of the world. Globalization is the result of advances in communication, transportation, and information technologies. It describes the growing economic, political, technological, and cultural linkages that connect individuals, communities, businesses, and governments around the world. Globalization also involves the growth of multinational corporations (businesses that have operations or investments in many countries) and transnational corporations (businesses that see themselves functioning in a global marketplace).
Three key institutions helped to shape the current era of globalization are the International Monetary Fund (IMF), the World Bank, and the World Trade Organisation (WTO). All three institutions trace their origins to the end of World War II (1939-1945) when the United States and the United Kingdom decided to set up new institutions and rules for the global economy. At the Bretton Woods Conference in New Hampshire in 1944, they and other countries created the IMF to help to stabilize currency markets. They also established what was then called the International Bank for Reconstruction and Development (IBRD) to help to finance rebuilding of Europe after the war.
The World Bank. Following Europe’s postwar recovery the IBRD became known as the World Bank. Its mission was redirected to help developing countries to grow faster and provide a higher living standard for their people. The World Bank made loans to developing countries for dams and other electrical-generating plants, harbour facilities, and other large projects. These projects were intended to lower costs for private businesses and to attract investors. Beginning in 1968 the World Bank focused on low-cost loans for health, education, and other basic needs of the world’s poor.
The IMF makes loans so that countries can maintain the value of their currencies and repay foreign debt. Countries accumulate foreign debt when they buy more from the rest of the world than they sell abroad. They then need to borrow money to pay the difference, which is known as balancing their payments. After banks and other institutions will no longer lend them money, they turn to the IMF to help them to balance their payments position with the rest of the world. The IMF initially focused on Europe, but by the 1970s it changed its focus to the less-developed economies. By the early 1980s a large number of developing countries were having trouble financing their foreign debts. In 1982 the IMF had to offer more loans to Mexico, which was then still a developing country and other Latin American nations just so they could pay off their original debts.
The IMF and the World Bank usually impose certain conditions for loans and require what are called structural adjustment programs from borrowers. These programs amount to detailed instructions on what countries have to do to bring their economies under control. The programs are based on a strategy called neoliberalism, also known as the Washington Consensus because both the IMF and the World Bank are headquartered in Washington, D.C. The strategy is geared toward promoting free markets, including privatization (the selling off of government enterprises); deregulation (removing rules that restrict companies); and tradeliberalization(opening local markets to foreign goods by removing barriers to exports and imports). Finally, the strategy also calls for shrinking the role of the government, reducing taxes, and cutting back on publicly provided services.
The World Trade Organisation (WTO) traces its origins to a 1948 United Nations (UN) conference in Havana, Cuba. The conference called for the creation of an International Trade Organisation to lower tariffs (taxes on imported goods) and to encourage trade. Although the administration of President Harry S. Truman was instrumental in negotiating this agreement, the US Congress considered it a violation of American sovereignty and refused to ratify it. In its absence another agreement, known as the General Agreement on Tariffs and Trade (GATT), emerged as the forum for a series of negotiations on lowering tariffs. The last of these negotiating sessions, known as the Uruguay Round, established the WTO, which began operating in 1995. Since its creation, the WTO has increased the scope of trading agreements. Such agreements no longer involve only the trade of manufactured products. Today agreements involve services, investments, and the protection of intellectual property rights, such as patents and copyrights. The United States receives over half of its international income from patents and royalties for the use of copyrighted material.
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