The forces of globalisation

Most people who watch the evening news on TV everyday will hear about every major natural disaster that happens in the world: every earthquake, every drought, every fatal landslide, every tornado and hurricane. Rarely will they hear a thing about the two most powerful financial institutions in the world: the IMF (the international monetary fund) and the World Bank, and yet these institutions probably have a bigger impact on the lives of more people than do all those natural disasters that we hear about so regularly.

Here we present a brief introduction to these two institutions - two institutions that are supposed to be the forces of good in the world, though they seem to many of us like the true axis of evil.

With so many European cities in ruin at the end of World War II the IMF and the World Bank were set up primarily to finance European reconstruction. There was also a longer term goal: to ensure that there was no repetition of the global economic depression that occurred in the 1930's.

(An aside: what does an economic depression look like? It looks like a downward spiral. For one reason or another companies experience falling profits so they start to cancel investments and lay off workers. Unemployment rises and the demand for goods falls. The government's income from taxes also declines, so publicly funded projects have to be cut back. All of this makes it even more difficult for companies to make a profit so they make more cutbacks and the spiral continues downwards. This can spread to other countries when they start to suffer a loss of demand for their exports.)

To avoid the spreading downward spiral of another global depression the idea was that governments could turn to the IMF to borrow money to help reduce unemployment and maintain demand for consumer goods whenever a local economic crisis started.

The objectives of the IMF and World Bank changed fundamentally in the 1980's. Instead of simply providing assistance to market economies that get into trouble, they became instruments of a much more aggressive drive to open up new markets around the world that companies in the more advanced countries could then gain access to and exploit.

By this time the IMF and World Bank were concerned less with Europe and much more with the Third World countries which had previously been colonies and had now gained independence. At the time of World War II those countries had been the sole responsibility of their imperial masters. Now, when they got into trouble and needed foregn loans, the IMF and World Bank stepped in. They had a carrot and a stick. The carrot was the desperately needed loan. The stick was the threat to withhold the money unless the country reformed its economy so that big foreign firms could come in and make money.

A key word here is "protection". All of the more developed economies used measures such as import controls in the past to protect their agriculture and industry. Such controls let companies grow until they are powerful to be able to compete in the international market.

According to the new philosophy there is no excuse for the world's poorest countries trying to protect their agriculture and industry. If they need foreign loans they must open their markets up to big foreign companies even though their own companies may have no hope of competing.

In the light of the original philosophy of the IMF this makes no sense at all. The influx of cheap goods from foreign companies may mean a slightly lower cost of living for many families but as local companies close and unemployment rises overall economic activity is likely to fall and levels of poverty will rise.

In effect these two agencies have become two of the strongest proponents of today's form of globalisation - a process whereby all the countries of the world are forced to open their markets, thereby maximising the opportunties for the largest and most powerful companies in the world.

Some people have called the new philosophy of the IMF and the World Bank "market fundamentalism". This means an insistence upon free markets that disregards the consequences for local communities and their traditional ways of life. Take, for example, the poor African countries that previously subsidised agricultural activities in remote rural areas. When they needed help from the IMF they were forced to stop these subsidies and let the local markets operate without the "distortions" introduced by government intervention. As a result, incomes in remote rural areas dropped so low that their communities were no longer viable.

To the market fundamentalist this is a small price to pay for the intellectual satisfaction of seeing the spread of the free market philosophy. In any case, so the theory goes, the damage is only short term. Those who can no longer make a living doing what they used to do will be motivated to pack their bags and move to cities where new jobs are being created. That's the way markets work.

The IMF will also force developing countries to cut back spending on things like education, and perhaps insist that fees be charged even for primary education. In the short term this could seem beneficial for an economy - government expenditure falls making it easier for the government to pay back its debts and sort its finances out. Only a market fundamentalist would ignore the issue of whether it is fair to make poor families pay for primary education. And only a market fundamentalist would ignore the long term effects of a policy that will effectively reduce the level of education in the country.

The phenomenon of child prostitution in Thailand is an example of what can happen when so-called structural adjustment programmes like these are implemented. Where wages are already less than a couple of euros a day, if families are forced into greater poverty and children are denied the free education they need to find a decent job they are forced to resort to desperate measures.

So what can we do? Nothing basically. There is no power on the face of the planet that can effectively challenge the IMF.