I still remember attending the first ministerial meeting of the World Trade Organization (WTO) in December 1996, a year after its founding. I did not know why known opponents of globalization like me had been invited; I suppose it was to inflict on us the lesson that it was futile to resist. An aura of triumphalism pervaded the meeting. Trade ministers and corporate executives alike proclaimed that globalization was the wave of the future.

Government restrictions on the free flow of goods, services, and capital were a thing of the past. Within what skeptical observers like me termed the “blessed trinity of multilateralism,” there was a clear division of labor: the International Monetary Fund (IMF) would do away with barriers to capital flows, the World Bank would transform developing countries into free-market economies, and the WTO, which former Director General Mike Moore called the “crown jewel of multilateralism,” would lead the elimination of any remaining barriers to corporate-driven international trade.

A quarter-century ago, the multilateral system of global economic governance had reached its pinnacle. Today, the WTO, the IMF, and the World Bank are experiencing a deep crisis of legitimacy. This erosion of Western-led multilateralism has been accompanied by a debilitating political crisis in the hegemonic power underpinning the system, while the momentous shift of the center of capital global accumulation from the United States to China has only deepened. These developments open the possibility for a better future for the Global South.

The birth of the New International Order

The IMF and the World Bank were founded at the historic Bretton Woods conference in 1944. They were supposed to be followed shortly by an International Trade Organization. But the 1948 Havana Charter, which set the parameters for the ITO, was not submitted for ratification to the U.S. Senate because the Truman administration did not feel it had the votes to overcome opposition from isolationist Republicans and U.S. corporate Walden Bello 58 interests that were concerned about “protectionist concessions” to developing countries, which had attended the Havana meeting in greater numbers than the Bretton Woods conference four years earlier. With foreign trade constituting a relatively small part of the U.S. economy, Washington eventually settled for a much weaker system of regulation, the General Agreement on Tariffs and Trade (GATT).

Why did the United States change its mind a few decades later? By the 1980s, foreign markets had become much more important to American corporations, and it was important to smash barriers to entry, especially in developing countries. U.S. agribusiness complained about how these countries protected their agricultural sectors from cheap subsidized imports.

Washington was also worried about countries in East Asia like South Korea, Taiwan, and Malaysia that engaged in aggressive export policies while building up manufacturing industries protected by high tariffs and import quotas. Their economies were en route to producing goods that could compete with the United States.

As the prime mover of the decade-long Uruguay Round of trade negotiations, Washington was confident that a strong international body imposing tough free-trade rules would benefit its corporations, which it saw as the most competitive in the world. WTO rules and institutions would promote, consolidate, and legitimize structures of global trade ensuring the hegemony of U.S. interests.

The European Commission decided to join the bandwagon for a strengthened international trade regime mainly because, like Washington, it wanted to open developing markets to its massive agricultural surpluses.

Leading industries in Europe and Japan—including the automobile, information technology, and pharmaceutical sectors—also had an interest in preventing the emergence of new competitors from East and Southeast Asia by making the latter’s acquisition of complex technologies (“intellectual piracy”) a violation of trade rules, or by stopping them from using trade restrictions to build up their industries.

Hypocrisy and overreach 

While the rhetoric of the WTO was rooted in free trade, three of its most important agreements had the actual goal of achieving monopolies. The Agreement on Agriculture (AOA) institutionalized the dumping of U.S. and European surpluses on developing countries by forcing the latter to end import quotas and lower their tariffs. The Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPs) sought to institutionalize U.S. corporations’ monopoly of high technology by outlawing reverse engineering and other methods used by developing countries to establish universal access to knowledge. The Agreement on Trade-Related Investment Measures (TRIMs) sought to prevent countries from imitating Japan, 59 GLOBAL ECONOMIC DISORDER South Korea, and Malaysia’s use of trade policy, including measures like reducing imported inputs into finished goods in favor of local inputs, to build up industries that could become significant competitors to the pharmaceutical, automobile, and information technology giants in both regional and global markets.

The United States and the European Union’s aggressive push for new trade negotiations to follow the Uruguay Round provoked resistance from developing country governments and civil society organizations, leading to the collapse of the Third WTO Ministerial Conference in Seattle in 1999 amid widespread street protests and a police riot (I’ll never forget the beating I received).

Then, in 2003, with the heft provided by India, Brazil, and China (a WTO member since 2001), developing countries were able to prevent the U.S. and EU attempt to dismantle government protection of small farmers. They also foiled attempts to tighten the already restrictive TRIPs Agreement and prevented an attempt to bring investment, government procurement, and competition policy under the WTO’s ambit.

The retreat from multilateralism

As developing country resistance consolidated under the leadership of India, Brazil, and China, the United States began to abandon multilateral trade liberalization via the WTO. After the Fifth Ministerial Conference collapsed in Cancún in 2003, the Bush administration’s U.S. Trade Representative Robert Zoellick warned: “As WTO members ponder the future, the U.S. will not wait: we will move towards free trade with can-do countries.” Over the next few years, the United States and the EU put their efforts into forging bilateral trade agreements or limited multilateral agreements, like the Trans-Pacific Partnership (TPP) favored by the Obama administration.

Trump’s trade war with China did not initiate the move to unilateralism; he merely brought to a climax the retreat from multilateralism that had begun in 2003. Even his administration’s controversial blocking of judges to the WTO’s appellate court was an extension of earlier practices. In 2016 the supposedly multilateralist Obama administration ousted a Korean Appellate Body member because it did not agree with the latter’s judgments in four trade disputes involving the United States.

Unable to overcome U.S. obstructionism, Brazilian WTO Director-General Roberto Azevêdo resigned in 2020 a year before his term was supposed to end. Nigerian diplomat Ngozi Okonjo-Iweala was favored by most members as a replacement, but Washington delayed the process while holding out for another candidate who was deemed more sympathetic to U.S. interests.

Members of the trade body have looked for more cooperation from Washington under the Biden administration. His team’s first move seemed encouraging: it ceased blocking Okonjo-Iweala, who is now the first woman 60 to head the WTO. But given eighteen years of unilateralism under both Republican and Democratic administrations, few members of the organization are holding their breath for more significant changes in Washington’s behavior.

The IMF’s terms and conditions

While neither the IMF nor the World Bank’s standing is as damaged as the WTO’s, their condition is nevertheless serious. Under former Managing Director Christine Lagarde, the IMF had served as a member of the socalled Troika, alongside the European Commission and the European Central Bank, that imposed savage austerity programs on Ireland and Greece in the aftermath of the 2008 global financial crisis. The IMF’s role in saving European banks by squeezing the Irish and Greek people showed that it had not deviated from the approach it took following the Asian financial crisis of 1997–1998: cut government budgets, fire people, and channel savings from this draconian process to pay off private-sector creditors. These “pro-cyclical” measures were to be adopted even if they prevented an early return to growth and caused widespread pain.

COVID-19 appeared to be a public relations bonanza for the IMF. Current Managing Director Kristalina Georgieva boasted of a $1 trillion war chest that the fund was willing to disburse to meet the challenge of what she called a “once in a lifetime pandemic.” There was only one problem: many IMF members who badly needed the cash were not biting. One $20 billion “debt relief” program for about twenty-five African countries found few takers; only Cameroon, Côte d’Ivoire, Ethiopia, and Senegal applied for funds.

The other countries were apprehensive not only because they had witnessed the IMF put Greece, Ireland, and other European countries through the wringer, but because they had read the fine print. They discovered that the IMF was offering loans, not grants; that the initiative was not debt cancellation but a restructuring of the loans owed to rich country governments by debtor countries so they could make their debt payments later; and that accepting a loan would subject a country to the same regimen of dreaded conditionalities and surveillance that accompanied regular IMF loans.

In short, the IMF’s COVID-19 programs were seen by developing countries as more of the same: loans that would put them into what Cheryl Payer has aptly called the “debt trap.” An added disincentive was fear of being placed on the watchlist of private banks that saw applying for IMF aid as an indicator of not being creditworthy. When asked why the IMF didn’t just cancel the massive debt of developing countries in light of the catastrophic economic impact of COVID-19, Georgieva offered the lame excuse that its articles of association did not allow that.

Credibility Problems at the World Bank

The World Bank’s proclaimed raison d’être is to end poverty. But poverty was on the increase even before COVID-19. It had become especially acute in Africa, owing partly to the conditions created by the World Bank’s neoliberal structural adjustment loans and those of sister institution, the IMF.

This is not the only reputational problem facing the World Bank. While a Bank-commissioned study sounded the alarm about the effects of an average temperature rise of 4 degrees Celsius by the turn of the century, the agency has laid itself open to charges of hypocrisy by continuing to promote investment in scores of carbon emission-intensive coal-fired plants throughout the globe. It is also deeply involved in the imbroglio around the United Nations Programme on Reducing Emissions from Deforestation and Forest Degradation, or REDD+, many of whose projects it funds; indigenous peoples from around the world call the program a recipe for the dispossession of forest-dependent communities.

These problems are indicative of a deeper crisis of legitimacy: the collapse of the rationale behind neoliberalism, trade liberalization, and globalization in the face of growing poverty and inequality, climate change, and global economic stagnation. The World Bank continues to support trade liberalization, but its advocacy has become more and more muted.

Indeed, some figures prominently identified with World Bank–backed neoliberalism have recanted. In his 2018 book The Future of Capitalism, Oxford economics guru Paul Collier, who served as director of the Development Research Group of the Bank from 1998 to 2003, indicts the entire economics profession for its defense of globalization and free trade:

The profession has been unprofessional, fearful that any criticism would strengthen populism, so that little work has been done on the downsides of these different processes. Yet the downsides were apparent to ordinary citizens, and the effect of economists appearing to dismiss them has resulted in widespread refusal of people to listen to “experts.” For my profession to re-establish credibility we must provide a more balanced analysis, in which the downsides are acknowledged and properly evaluated with a view to designing policy responses that address them. The profession may be better served by mea culpa than by further indignant defenses of globalization.

The Reign of the Global North

The Bretton Woods institutions are suffering not only from policy crises and a shattered intellectual paradigm, but a long-running, debilitating dispute 62 over governance reform. Despite some fifty years of trying, the countries of the Global South have not been able to get the dominant powers in both institutions to accept even a modicum of reform.

At the IMF, the United States holds over 16 percent of voting power, giving it an effective veto over any change in the articles of association or major policies. Europe is the IMF’s next most powerful bloc. The four biggest BRICS (Brazil, Russia, India, and China) are responsible for over 24 percent of global GDP, compared with the 13 percent share of the four biggest European economies (Germany, France, the UK, and Italy). However, the former have a combined IMF vote share of only 10 percent, compared with the four European nations’ nearly 18 percent. Long-promised voting power shifts from developed to developing countries have amounted to a marginal 2.6 percent change, according to analysts Robert H. Wade and Jakob Vestergaard. Meanwhile, Europe remains unwilling to give up its “right” to name the fund’s managing director.

Similar issues plague the World Bank. The United States exercises almost 16 percent of voting power, and it can count on its influence on European countries. In a “realignment” of the voting shares at the World Bank a few years ago, according to the Bretton Woods Project, Africa’s vote share rose by less than 0.2 percent. High-income countries continue to cling onto almost 61 percent of the vote, while middle-income countries hold under 35 percent and low-income countries less than 5 percent. And the United States has maintained the privilege of naming the head of the World Bank.

Hegemonic Transition 

The crisis of the Western-dominated multilateral system can only deepen with the fatal conjunction in the United States of an out-of-control pandemic, the erosion of political institutions, and the unravelling of the economy.

U.S. power has underpinned the system, but the country’s international reputation is at its lowest point in decades. Meanwhile, large numbers of Americans have prioritized tackling the country’s domestic problems and fueled a new isolationist mood, which Trump embodied and Biden will find difficult to reverse.

Owing to the transfer of much of the U.S. industrial base to China by American transnational corporations and its own swift technological advances, China has become the new center of global capital accumulation.

In the last few years, Beijing has moved into the ideological space being vacated by a dispirited United States. Prior to the coronavirus, it articulated a vision of “connectivity” as the next phase of globalization, accompanying this with the $1 trillion Belt and Road Initiative, which aims at integrating the Eurasian landmass via infrastructure, rail, and energy generation projects.

Beijing has also led in the creation of the Regional Comprehensive Economic Partnership (RCEP), a recently signed free-trade agreement that brings together fifteen Asia-Pacific countries. Many observers see an incipient multilateral system emerging in a number of initiatives Beijing has taken the lead in establishing: the Asian Infrastructure Investment Bank, the New Development Bank, and the Contingent Reserve Arrangement.

Beijing has advanced these initiatives very cautiously, just as it has in promoting the renminbi as a potential reserve currency. It says that these institutions do not seek to supplant but to exist alongside the IMF, World Bank, and WTO. In fact, China has relied on the advice and cooperation of the IMF and the World Bank in setting them up. Chinese leaders are obviously trying to dampen expectations about these institutions, apparently apprehensive about the burden of responsibility that is expected from great power.

Rather than being displaced or taken over by the Chinese, the Bretton Woods institutions are likely to limp along, providing some ideological competition to the Chinese by promoting a corporate-led as opposed to a state-led path of development, but at some point unable to compete with them when it comes to resources. When it comes to borrowing money or seeking development aid, more and more countries in the Global South will beat a path to Beijing rather than to the IMF and World Bank headquarters in Washington.

Similarly, the global trading system is moving toward a hodgepodge of institutions, including a greatly weakened WTO, regional arrangements like the RCEP, developing country trade blocs like Mercosur in South America, bilateral treaties like the United States–Korea Free Trade Agreement, and noninstitutionalized bilateral and unilateral initiatives.

This situation bears some resemblance to the pre-WTO era. For many developing countries, the period from 1948 to 1995 under the weak GATT trade regime was an era with greater room for development, owing to the lack of pressure to open up agricultural and manufacturing sectors, weak trade dispute mechanisms, and the absence of anti-development agreements like TRIPs. In the absence of genuine multilateralism, not distorted by the power of an assertive hegemon, the current trade regime may well be the best system that is realistically possible for the Global South.

The End of an Era 

The free flow of capital and goods that multilateral institutions promoted during the long Bretton Woods era has been a boon for Western, particularly U.S., corporations, and a major contributor to the rise of global inequality. The deindustrialization and stagnation of wages triggered by trade and capital liberalization has been the lot of the working class in the latter part of this period. In the Global South, the radical lowering of tariffs 64 and elimination of import quotas, the imposition of monopolistic agreements to the benefit of the Global North, structural adjustment programs, and the debt cycles promoted by the the IMF, World Bank, and WTO have spelled misery for hundreds of millions of people.

There were developing countries in East Asia that prospered under this regime. But this was only because they blithely disregarded neoliberal prescriptions even as they pledged their compliance with these “principles.” Most noteworthy among these exceptions was China, whose powerful post-revolutionary government allowed Northern corporations to extract superprofits from the exploitation of Chinese labor even as it used their investments to develop key sectors of the economy and to force transfer technology, a process that would eventually make the presence of these corporations obsolete. These “exceptions” are shifting the center of global capital accumulation, and in the process not only presenting an alternative development model but a counterforce to the U.S. and multilateral economic institutions that failed the Global South.

- Walden Bello is the cofounder and current co-chair of the Bangkok-based think tank Focus on the Global South and the International Adjunct Professor of Sociology at the State University of New York at Binghamton. The author or co-author of twenty-five books, he received the Right Livelihood Award in 2003 for his work critiquing and organizing against corporate-driven globalization.

Parts of this article are adapted from “How the IMF and World Bank Turned a Pandemic into a Publicity Stunt,” an October 2020 paper published at Foreign Policy in Focus.

Published in Dissent, May/June 2021