Reform and Resistance

Reform and Resistance

Will any of these changes occur in an effective way? In recent months these institutions have warmed to changes in these areas. For example, in April 2008, it was decided that rich countries at the IMF would give in 3 percent of the votes; 2 percent went to emerging countries and 1 percent to other developing countries. However, this is still not that much and this crisis shows that more is needed in a more deeper and meaningful way.

This will be hard to predict. If history is any indicator, power and greed politics always ruin good ideas. Those who benefit from a system are less likely to be receptive to change, or want to steer change in a direction that will be good for them, but that may not mean good for everyone.

And tensions, even amongst the more powerful nations are already showing. For example, the US has not invited Spain to a financial crisis summit for mid-November. As the world’s eight largest economy and home to 2 of the world’s top 16 banks, a meeting of the G20 (G7 plus some developing nations) sees Spain (the world’s 8th largest economy) missing out of either classification. Spain, however, sees this as US retaliation for the country withdrawing its troops from Iraq. It has full EU support for being present at this meeting as well as support from a number of Latin American countries. Like France, it wants to see in-depth reform of the global financial system and focuses on IMF reform as well as giving more representation to emerging nations.

The eventual outcome of the G20 meeting seemed mixed. They agreed to use government spending to fight a spreading recession, to tighten lax oversight of markets, to resist protectionism, and to revive stalled negotiations for a new global trade pact. They also agreed to meet at the end of March 2009 to follow up. Developing countries also got more assurances about increased say at international financial institutions through promises of reform at the IMF and World Bank. But others argued that the meeting outcome seemed more vague than concrete and only these principles seemed to have been agreed without anything more concrete.

The call to resist protectionism has been a prime concern from the Bush Administration, sometimes (incorrectly) equating calls for regulation with protectionsim. The calls for regulation have typically been to make companies more transparent and ensure the financial mess created can be avoided in the future. Nonetheless, other regions around the world agree that generally free trade is desirable over protectionist policies. History has shown that once economies mature they benefit from less protectionist measures (but also shows that nations on early stages of development may also benefit from it). The APEC trading bloc, for example, represents almost half of all world trade. Most member states are generally industrialized, so as a group, APEC nations have agreed to resist protectionist measures.

Paul Krugman suggests that protectionism may be necessary for a while as these are not normal conditions where the case for protectionism may be on weaker grounds, at least for industrialized nations.

Reform of the IMF and World Bank, however, will be crucial for much of the world. Whether that actually happens and to what extent those with power are willing to truly share power is something that we will find out in the course of the next year.

The promise of rearchitecting the global financial system more fundamentally seemed to wither away slightly. As the Bretton Woods Project noted, the G20 had little time to effect much and could not do it alone, any way:

G20 governments, swept off their feet by the financial crisis, were never going to be able to reach a consensus on deeper reforms within the few weeks taken to prepare the summit. Critics argue that the G20 can never tackle this agenda alone.

As Miguel D’Escoto, president of the UN General Assembly said: “Only full participation within a truly representative framework will restore the confidence of citizens in our governments and financial institutions.” He continued, “Solutions must involve all countries in a democratic process.”

— International economic architecture: cleaning up the mess?, Bretton Woods Project, November 27, 2008

Hardly mentioned in the mainstream media by comparison, the more democratic alternative was the Doha conference on financing for development meeting at the end of November in Doha, Qatar, held by the United Nations General Assembly. Perhaps partly because of lack of mainstream media attention, the Doha conference also resulted in weak pledges and disappointment.

More generally, as Vandaele also finds,

The most powerful international institutions tend to have the worst democratic credentials: the power distribution among countries is more unequal, and the transparency, and hence democratic control, is worse.

— John Vandaele, Democracy Comes to World Institutions, Slowly, Inter Press Service, October 27, 2008

Although history often shows that those with agendas of power tend to win out, history also shows us that power shifts. A financial crisis of this proportion may signify the beginnings of such a shift.

And so, it is perhaps only at a time of crisis that more fundamental rethinking of the entire economic system can be entertained.