The ABCs of the Global Economy
by the Dollars and Sense Collective
In the 1960s, U.S. corporations changed
the way they went after profits in the international economy.
Instead of producing goods in the U.S. to export, they moved
more and more toward producing goods overseas to sell to
consumers in those countries and at home. They had done some
of this in the 1950s, but really sped up the process in the ’60s.
Before the mid-1960s, free trade probably helped workers and consumers
the United States while hurting workers in poorer countries. Exporters
invested their profits at home in the United States, creating new jobs and
boosting incomes. The AFL-CIO thought this was a good deal and backed
But when corporations changed strategies, they changed the alliances. By
late 1960s, the AFL-CIO began opposing free trade as they watched jobs
go overseas. But unionists did not see that they had to start building alliances
internationally. The union federation continued to take money secretly from
the U.S. government to help break up red unions abroad, not a good tactic
for producing solidarity. It took until the 1990s for the AFL-CIO to reduce
(though not eliminate) its alliance with the U.S. State Department. In the
1990s, unions also forged their alliance with the environmental movement to
oppose free trade.
But corporations were not standing still; in the 1980s and 1990s they were
working to shift the architecture of international institutions created after
World War II to work more effectively in the new global economy they were
creating. More and more of their profits were coming from overseas — by
the 1990s, 30% of U.S. corporate profits came from their direct investments
overseas, up from 13% in the 1960s. This includes money made from the
operations of their subsidiaries abroad. But the share of corporate profits is
earned overseas is even higher than that because the 30% figure doesn’t
include the interest companies earn on money they loan abroad. And the
financial sector is an increasingly important player in the global economy.
Financial institutions and other global corporations without national ties
use governments to dissolve any national restraints on their activities. They
are global, so they want their government to be global too. And while trade
used to be taken care of through its own organization (GATT) and money
vaguely managed through another organization (the International Monetary
Fund), the new World Trade Organization erases the divide between trade
and investment in its efforts to deregulate investment worldwide.
In helping design some of the global institutions after World War II, John
Maynard Keynes assumed companies and economies would operate within
national bounds, with the IMF and others regulating exchanges across those
borders. The instability created by ruptured borders is made worse by the
deregulation sought by corporations, and especially, the financial sector. The
most powerful governments of the world seem oblivious to this threat in giving
them what they want.
This is a world-historical moment in which it is possible to stop the corporate
offensive, a moment when the ruling partnership composed of the United
States, Europe and to a lesser extent Japan is fracturing, as the European
Union reaches its limit on the amount of deregulation it will take and Japan’s
economy is in turmoil. This may allow those opposing the ruling bloc — Third
World governments (which may be conservative), labor, and
environmentalists worldwide — to build alliances of convenience with
sympathetic elements within the EU to guide the reshaping of the global
institutions in a liberatory manner.
What follows is a primer on the most important of those institutions. We
in the near future to publish primers on other aspects of the global economy:
regional trade agreements and alternative visions of how to regulate it. Stay
— Abby Scher
The World Bank and International Monetary
Where did they come from?
The basic institutions of the postwar international capitalist economy
were framed, in 1944, at an international conference in the town of
Bretton Woods, New Hampshire. Among the institutions coming out
of the conference were the World Bank and the International
Monetary Fund (IMF). These two are often discussed together
because they were founded together, because countries must be
members of the IMF before they can become members of the World
Bank, and because both practice what is known as "structural
adjustment" (where borrower countries unable to obtain credit from
other sources must change government policies before loans are
At both the World Bank and IMF, the number of votes a country
receives is based on how much capital it gives the institution, so rich
countries like the United States enjoy disproportionate voting power.
In both, five powerful countries (the United States, Great Britain,
France, Germany, and Japan) get to appoint their own representatives
to the institution’s executive board (with 19 other directors elected by
the rest of the 150-odd member countries). The president of the World
Bank is elected by the Board of Executive Directors, and traditionally
nominated by the US representative. The managing director of the
IMF, meanwhile, is traditionally a European. The governments of a
few rich countries, obviously, call the shots in both institutions.
Why Should You Care?
Just after World War II, the World Bank mostly loaned money to
Western European governments to help rebuild their countries. It was
during the long tenure (1968-1981) of former U.S. Defense Secretary
Robert S. McNamara as president that the bank turned towards
"development" loans to Third World countries. McNamara brought
the same philosophy to "development" that he had used in war –
more is better. Ever since, the Bank’s approach has drawn persistent
criticism for favoring large, expensive projects regardless of their
appropriateness to local conditions. Critics have argued that the Bank
pays little heed to the social and environmental impact of the projects
it finances, and that it often works through dictatorial elites that
channel benefits to themselves rather than those who need them (and
leave the poor to foot the bill later).
The most important function of the IMF is as a "lender of last resort"
to member countries that cannot borrow money from other sources.
The loans are usually given to prevent a country from defaulting on
previous loans from private banks. Funds are available from the IMF,
on the condition that the country implement what is formally known as
a "structural adjustment program" (SAP), but more often referred to
as an "austerity plan." Typically, a government is told to eliminate
price controls or subsidies, devalue its currency or eliminate labor
regulations like minimum wage laws — all actions whose costs are
born by the working class and the poor whose incomes are cut.
The conditions imposed by the IMF and the World Bank, which places
similar conditions on "structural adjustment" loans, are motivated by
an extraordinary devotion to the free-market model. As Colin
Stoneman, an expert on Zimbabwe, put it, the World Bank’s
prescriptions for that country during the 1980s were "exactly those
which someone with no knowledge of Zimbabwe, but familiarity with
the World Bank, would have predicted."
The IMF and World Bank wield power disproportionate to the size of
the loans they give out because private lenders take their lead in
deciding which countries are credit-worthy. Both institutions have
taken advantage of this leverage, and of debt crises in Latin America,
Africa, and now Asia, to impose their cookie-cutter model (against
varying levels of resistance from governments and peoples) on poor
countries around the world.
— Alejandro Reuss
The Multilateral Agreement on Investment
(MAI), Trade Related Investment Measures
(TRIMs), and the Interna-tional Movement of
Where did they come from?
You’re probably not the sort of person who would own a chemical
plant or luxury hotel, but imagine you were. Imagine you built a
chemical plant or luxury hotel in a foreign country, only to see a
labor-friendly government take power and threaten your profits. This
is the scenario which makes the CEOs of footloose global
corporations wake up in the middle of the night in a cold sweat. To
avert such threats, ministers of the richest countries met secretly at
the Organization for Economic Cooperation and Development
(OECD) in Paris in 1997 and tried to hammer out a bill of rights for
international investors, the Multilateral Agreement on Investment
When protests against the MAI broke out in the streets and the halls
of government alike in 1998 and 1999, scuttling the agreement in that
form, the corporations turned to the World Trade Organization to
achieve their goal. (See "Rage Against the MAchIne" by Chantell
Taylor, Dollars & Sense, September/October 1998.)
What are they up to?
Both the MAI and Trade Related Investment Measures (or TRIMs,
the name of the WTO version) would force governments to
compensate companies for any losses (or reductions in profits) they
might suffer because of changes in public policy. Governments would
be compelled to tax, regulate, and subsidize foreign businesses
exactly as they do local businesses. Policies designed to protect
fledgling national industries (a staple of industrial development
strategies from the United States and Germany in the 19th century to
Japan and Korea in the 20th) would be ruled out.
TRIMs would also be a crowning blow to the control of governments
over the movement of capital into or out of their countries. Until fairly
recently, most governments imposed controls on the buying and
selling of their currencies for purposes other than trade. Known as
capital controls, these curbs significantly impeded the mobility of
capital. By simply outlawing conversion, governments could trap
investors into keeping their holdings in the local currency. But since
the 1980s, the IMF and the U.S. Treasury have pressured
governments to lift these controls so that international companies can
more easily move money around the globe. Corporations and wealthy
individuals can now credibly threaten to pull liquid capital out of any
country whose policies displease them.
Malaysia successfully imposed controls during the Asian crisis of
1997 and 1998, spurring broad interest among developing countries.
The United States wants to establish a new international discussion
group -– the Group of 20 (G-20), consisting of ministers from 20
developing countries handpicked by the U.S. — to consider reforms.
Meanwhile, it continues to push for the MAI-style liberation of capital
from any control whatsoever.
Why Should You Care?
It is sometimes said that the widening chasm between the rich and
poor is due to the fact that capital is so easily shifted around the globe
while labor, bound to family and place, is not. But there is nothing
natural in this. Human beings, after all, have wandered the earth for
millennia — traversing oceans and continents, in search of food, land,
and adventure — whereas a factory, shipyard, or office building, once
built, is almost impossible to move in a cost effective way. Even liquid
capital (money) is less mobile than it seems. To be sure, a Mexican
can fill a suitcase with pesos, hop a plane and fly to California, but
once she disembarks, who’s to say what the pesos will be worth, or
whether they’ll be worth anything at all? For most of this century,
however, capitalist governments have curbed labor’s natural mobility
through passports, migration laws, border checkpoints, and armed
border patrols, while capital has been rendered movable by treaties
and laws that harmonize the treatment of wealth around the world.
The past two decades especially have seen a vast expansion in the
legal rights of capital across borders. In other words, labor fights with
the cuffs on, while capital takes the gloves off.
World Intellectual Property Organization
(WIPO) and Trade-Related Aspects of
Intellectual Property Rights (TRIPs)
What are they up to?
One of the less familiar members of the "alphabet soup" of
international economic institutions, the World Intellectual Property
Organization (WIPO) has governed "intellectual property" issues
since its founding in 1970 (though it oversees treaties and conventions
dating from as early as 1883). Companies are finding it harder to
control intellectual property in two new fields — computer software
and biotechnology — because it is so cheap and easy to reproduce
electronic information and genetic material in virtually unlimited
quantities. This is what makes software, music and video "piracy"
In the old days, "intellectual property" only covered property rights
over inventions, industrial designs, trademarks, and artistic and
literary works. Now it covers computer programs, electronic images
and recordings, and even biological processes and genetic codes.
WIPO has been busy staking out a brave new world of property rights
in the electronic domain. A 1996 WIPO treaty, which now faces
ratification battles around the world, would outlaw the
"circumvention" of electronic security measures. It would be illegal,
for example, to sidestep the security measures on a website (such as
those requiring that users register or send payment in exchange for
access). The treaty, if ratified, would also prevent programmers from
cracking open commercial software to view the underlying code. This
could prevent programmers from crafting their own programs so that
they are compatible with existing software, and prevent innovation in
the form of "reengineering" — drawing on one design as the basis of
another. Reengineering has been at the heart of many country’s
economic development — not just Taiwan but also the United States.
Lowell, Massachusetts, textile manaufacturers built their looms based
on English designs.
WIPO now faces a turf war over the intellectual property issue with
none other than the World Trade Organization (WTO). Wealthy
countries are attempting an end run around WIPO because it lacks
enforcement power and less developed countries have resisted its
agenda. But the mass-media, information-technology, and
biotechnology industries in wealthy countries stand to lose the most
from "piracy" and to gain the most in fees and royalties if given more
extensive property rights. So they introduced, under the name
"Trade-Related Aspects of Intellectual Property Rights" (TRIPS),
extensive provisions on intellectual property into the most recent
round of WTO negotiations.
TRIPs would put the muscle of trade sanctions behind intellectual
property rights. It would also stake out new intellectual property
rights over plant, animal, and even human genetic codes. The
governments of some developing countries have objected, warning
that private companies based in rich countries will declare ownership
over the genetic codes of plants long used for healing or crops within
their countries. By manipulating just one gene of a living organism, a
company can be declared the sole owner of an entire plant variety.
Why Should You Care?
These proposals may seem like a new frontier of property rights, but
except for the defense of ownership over life forms, TRIMS are
actually a defense of the old regime of property rights. It is because
current computer- and bio-technology make virtually unlimited
production and free distribution possible that the fight for private
property has become so extreme. By extending private property to
previously unimagined horizons, we are reminded of the form of power
used to defend it.
— Alejandro Reuss
The World Trade Organization (WTO)
Where did it come from?
Since the 1950s, government officials from around the world have met
irregularly to hammer out the rules of a global trading system. Known
as the General Agreements on Trade and Tariffs (GATT), these
negotiations covered, in excruciating detail, such matters as what
level of taxation Japan would impose on foreign rice, how many
American automobiles Brazil would allow into its market, and how
large a subsidy France could give its vineyards. Every clause was
carefully crafted, with constant input from business representatives
who hoped to profit from expanded international trade.
The GATT process however, was slow, cumbersome and difficult to
monitor. As corporations expanded more rapidly into global markets
they pushed governments to create a more powerful and permanent
international body that could speed up trade negotiations as well as
oversee and enforce provisions of the GATT. The result is the World
Trade Organization, formed out of the ashes of GATT in 1994.
What is it up to?
The WTO functions as a sort of international court for adjudicating
trade disputes. Each of its 135 member countries has one
representative, who participates in negotiations over trade rules. The
heart of the WTO, however, is not its delegates, but its dispute
resolution system. With the establishment of the WTO, corporations
now have a place to complain to when they want trade barriers — or
domestic regulations that limit their freedom to buy and sell —
Though corporations have no standing in the WTO — the organization
is, officially, open only to its member countries — the numerous
advisory bodies that provide technical expertise to delegates are
overflowing with corporate representation. The delegates themselves
are drawn from trade ministries and confer regularly with the
corporate lobbyists and advisors who swarm the streets and offices of
Geneva, where the organization is headquartered. As a result, the
WTO has become, as an anonymous delegate told the Financial
Times, "a place where governments can collude against their
Lori Wallach and Michelle Sforza, in their new book The WTO: Five
Years of Reasons to Resist Corporate Globalization, point out that
large corporations are essentially "renting" governments to bring
cases before the WTO, and in this way, to win in the WTO battles
they have lost in the political arena at home. Large shrimping
corporations, for example, got India to dispute the U.S. ban on shrimp
catches that were not sea-turtle safe. Once such a case is raised, the
resolution process violates most democratic notions of due process
and openness. Cases are heard before a tribunal of "trade experts",
generally lawyers, who, under WTO rules, are required to make their
ruling with a presumption in favor of free trade. The WTO puts the
burden squarely on governments to justify any restriction of what it
considers the natural order of things. There are no amicus briefs
(statements of legal opinion filed with a court by outside parties), no
observers, and no public record of the deliberations.
The WTO’s rule is not restricted to such matters as tariff barriers.
When the organization was formed, environmental and labor groups
warned that the WTO would soon be rendering decisions on essential
matters of public policy. This has proven absolutely correct.
Currently, the WTO is considering whether "selective purchasing"
laws – like a Massachusetts law barring state agencies and local
governments from buying products made in Burma and intended to
withdraw an economic lifeline to that country’s dictatorship – are a
violation of "free trade." It is feared that the WTO will rule out these
kinds of political motives from government policy making. The
organization has already ruled against Europe for banning
hormone-treated beef and against Japan for prohibiting
Why Should You Care?
At stake is a fundamental issue of popular sovereignty – the rights of
the people to regulate economic life, whether at the level of the city,
state, or nation. Certainly, the current structure of institutions like the
WTO allows for little if any expression of the popular will. Can a city,
state, or country insist that goods sold in its markets meet labor and
environmental standards determined in a democratic forum by its
citizens? What if the U.S., for example, insisted that clothing
manufactured for the Gap by child laborers not be permitted for sale
here? The U.S. does not allow businesses operating within its borders
to produce goods with child labor, so why should we allow those same
businesses — Disney, Gap, or Walmart – to produce their goods with
child labor in Haiti and sell the goods here? — Ellen Frank
International Standards Organization (ISO)
There’s at least one global institution shaping commerce that corporations
control completely, with no pretense of public involvement. That is the
International Standards Organization (ISO).
It was founded in 1947 (around the same time as the International Monetary
Fund, World Bank and GATT), with the aim of easing trade by standardizing
the dimensions of industrial products. Most famously, it set the dimensions of
screw threads so that an auto manufacturer in the United States can be
confident that screws it buys in China can be used in its cars. More recently,
the ISO trumpets its success in standardizing ATM and credit card
dimensions so they can be used in machines worldwide.
Without set standards, buyers cannot roam the world in search of the
cheapest deal; the dissimilar products thus act as a "technical barrier to
trade." Not surprisingly, the ISO, although privately run, is intimately linked to
the World Trade Organization with whom it says it is creating "a strategic
"The political agreements reached within the framework of the WTO require
underpinning by technical agreements" devised by the ISO, according to the
"From an environmental perspective, the ISO isn’t ideal because it’s captured
by industry," says trade lawyer Stephen Porter of the Washington, D.C.
Center for International and Environmental law. Companies send their expert
reps to national standards organizations, that in turn send reps to the ISO.
That might not be a problem if the ISO stuck to screws, but in the 1990s
expanded its scope to setting environmental standards, including the process
used for producing organic agricultural products.
"The part that’s most troublesome is when an ISO standard becomes a
default standard under the WTO rules," says Porter. "Does it become
impossible to go beyond that in a practical matter if Austria wants to set an
environmental standard that is 130% of the ISO standard?" And once ISO
standards become part of the WTO, what was a voluntary system receives
the force of law, without public involvement. — Abby Scher
The International Labor Organization (ILO)
Every year it is becoming more obvious that the global economy needs global
regulation to protect the interests of workers and their communities. This was
a central demand of some WTO protesters in Seattle. But who can regulate
at a global level, and how can this regulation be made democratically
accountable? There are no easy answers to these questions, but we can learn
a lot by studying the successes and shortcomings of the International Labor
Where did it come from?
The ILO was established in 1919 in the wake of World War I, the Bolshevik
revolution in Russia, and the founding of the Third (Communist) International,
a world federation of revolutionary socialist political parties. Idealistic motives
mingled with the goal of business and political elites to offer workers an
alternative to revolution, and the result was an international treaty organization
(established by agreement between governments) whose main job was to
promulgate codes of practice in work and employment.
After World War II the ILO was grafted onto the UN structure, and it now
serves a wide range of purposes: drafting conventions on labor standards
(182 so far), monitoring their implementation, publishing analyses of labor
conditions around the world, and providing technical assistance to national
Why Should You Care?
The ILO’s conventions set high standards in such areas as health and safety,
freedom to organize unions, social insurance, and ending abuses like
workplace discrimination and child labor. It convenes panels to investigate
whether countries are upholding their legal commitment to enforce these
standards, and by general agreement their reports are accurate and fair. ILO
publications, like its flagship journal, The International Labour Review, its
World Labor and Employment Reports, and its special studies, are of very
high quality. Its staff, which is headquartered in Geneva and numbers 1,900,
has many talented and idealistic members. The ILO’s technical assistance
program is minuscule in comparison to the need, but it has changed the lives
of many workers. (You can find out more about the ILO at its website:
As a rule, international organizations are reflections of the policies
member governments, particularly the ones with the most clout, such as the
United States. Since governments are almost always biased toward business
and against labor, we shouldn’t expect to see much pro-labor activism in
official circles. The ILO provides a partial exception to this rule, and it is
worth considering why. There are probably four main reasons:
• The ILO’s mission explicitly calls for improvements in the conditions
work, and the organization attracts people who believe in this cause.
Compare this to the mission of the IMF (to promote the ability of countries to
repay their international debts) or the WTO (to expand trade), for instance.
• Governments send their labor ministers (in the US, the Secretary of Labor)
to represent them at the ILO. Labor ministers usually specialize in social
protection issues and often serve as liaisons to labor unions. A roomful of
labor ministers will generally be more progressive than a similar gaggle of
finance (IMF) or trade (WTO) ministers.
• The ILO’s governing body is based on tripartite principles: representatives
from unions, employers, and government all have a seat at the table. By
institutionalizing a role for nongovernmental organizations, the ILO achieves a
greater degree of openness and accountability.
• Cynics would add that the ILO can afford to be progressive because it
largely powerless. It has no enforcement mechanism for its conventions, and
some of the countries that are quickest to ratify have the worst records of
living up to them.
The ILO has significant shortcomings as an organization. Perhaps the most
important is its cumbersome, bureaucratic nature: it can take forever for the
apparatus to make a decision and carry it out. (Of course, that beats the
IMF’s approach: decisive, reactionary, and authoritarian.) The experience of
the ILO tells us that creating a force capable of governing the global economy
will be extremely difficult, and that there are hard tradeoffs between
democracy, power, and administrative effectiveness. But it also demonstrates
that reforming international organizations —- changing their missions and
governance systems —- is worth the effort, especially if it brings
nongovernmental activists into the picture.
Resources: Arthur MacEwan, "Markets Unbound: The Heavy Price of
Globalization," Real World International (Dollars and Sense, 1999);
David Mermelstein, ed., The Economic Crisis Reader (Vintage, 1975);
Susan George and Fabrizio Sabelli, Faith and Credit: The World Bank’s
Secular Empire (Penguin Books, 1994); Hans-Albrecht Schraepler,
Directory of International Economic Organizations (Georgetown
University Press, 1997); Jayati Ghosh, Lectures on the history of the
world economy, Tufts University, 1995; S.W. Black, "International
Monetary Institutions," The New Palgrave: A Dictionary of Economics,
John Eatwell, Murray Milgate, and Peter Newman, eds. (The Macmillan
Press Limited, 1987).