The Pillars of the Global Economy


In 1944, forty-four countries congregated in New Hampshire to discuss what would be known as the Bretton Woods Agreement. The aim of this meeting, which took three weeks, was to plan an economic strategy that would prevent economic crisis and maintain sustainable economic growth in the world.

However, the primary agenda of this meeting was to come up with a strategy to redevelop the war torn Europe. From this conference two new powerful global economic institutions emerged. I am referring to the International Monetary Fund and the International Bank for Reconstruction and Development (better known as the World Bank). Initially, the role of these institutions was to provide financial aid to countries in order to maintain a sustainable economic growth in the financial markets of the world by impeding financial crisis. Europe at the time was devastated by the war; thus, both institutions made their first loans to European countries .

The World Bank currently has one hundred and eighty five member states. The US, Japan and some Western countries hold dominant positions in the World Bank. On its official website, the World Bank proudly states that its mission is to "reduce poverty in middle-income and creditworthy poorer countries by promoting sustainable development through loans… risk management products, and analytical and advisory services [1]." In case one vaguely understands what is meant by the ‘middle income and credit worthy poorer countries", the World Bank further explains that it’s the countries where "people… earn less than $2 per day" [2]. Further more, it points out that these countries generally lack essential services. Poor countries, according to the World Bank, lack the resources and the finances to improve their impoverished status. Thus, the World Bank facilitates the funding process and unilaterally decides which kind of economic policies that the borrowing countries must implement in their countries.

Usually the World Bank does not work alone in ‘promoting sustainable’ development in such countries, but works hand in hand with huge transnational corporation and other prestigious Banks and agencies (such as the US Agency for International Development and the Government of Japan – Ministry of Finance).

As for the International Monetary Fund, it "was established to promote international monetary co-operation… stability… to foster economic growth… and to provide temporary financial assistance to countries to help ease balance of payments adjustment"[3]. The former Chief Economist of the World Bank Joseph Stiglitz writes that the International Monetary Fund originated from realising that a shared vision of global substantial economy by the world leaders was necessary [4]. According to Stiglitz, the IMF was not the first institution to be based on this view, but also other global organisation such as the United Nations.

Peter Dickens concurs with Stiglitz and observed that the most important aim of the International Monetary Fund "was to encourage monetary co-operation among nations through a set of rules for world payments and currencies" [5]. Moreover, Dickens notes that every member state of the IMF donates a sum of money to the fund and that the more money a country donates the more say it has over the functioning of the fund.

The IMF has one hundred and eighty five member states. Out of the 185 member states of the IMF, the United States of America "is the only country that has a veto power"[6]. Other countries that have dominant roles in the decision making of the IMF are also economically developed countries such as Japan, Germany, France, and the U.K.


Foreign Direct Investment and the Transnational Corporations

The role of the foreign direct investment (FDI) is to set a standard by which transnational companies (TNC) can be measured. Foreign direct investment’s value per "country is an indication of the value of the stock of productive capital in that country." Manuel Castells writes that the foreign direct investment is closely linked to the growth of the TNCs. He further argues that "FDI…takes the form of mergers and acquisitions in the developed economies and, increasingly, in the developing world" [7]. Foreign direct investment, writes Blake and Walters, is a "global phenomenon with companies from advanced industrial states and developing countries investing across borders…"[8]

As one might expect, large proportion of the foreign direct investments comes from and is monopolised by economically developed countries. In the 1960s, the U.S companies were dominant, and consequently they were the largest benefactors of foreign direct investment. Over time their dominance was shaken by the rise of European and Japanese companies [9].

The main pillars of the global economy are said to be the transnational companies. The transnational companies produce and control the distribution of the world resources. Transnational companies (TNCs), also known as the engines of globalisation can be defined as the "economic enterprises -manufacturing, extractive, service, and financial -that are heard quartered in one country and that pursue business activities in one or more foreign countries" [10]

A number of TNCs ‘pursue’ these ‘activities’ in countries or regions that are most likely to protect their interests and give them more profits. For instance, Banks and insurance institutions are more likely to invest in ‘politically stable’ developed countries where their interests are protected. Manufacturing companies, on the other hand, are most likely to invest in countries where they are required to pay less taxes and the labour cost is cheap. Some writers contend that American transnational companies are most likely to "invest in the most profitable… state industries and then to be even more profiting than their local competitors"[11].

Michael Parenti points out that TNCs are "attracted by the rich natural resources, the high return that comes from low- paid labor and the nearly complete absence of taxes, environmental regulations, workers benefits, and occupational safety cost"[12]. And, of course, when these corporations move from high cost countries to the low pay countries, they cause havoc for the working class ( i.e. job loss).

TNCs: The Good and the Bad

When TNC’s cross their national boundaries and invest in other countries, they tend to create jobs for the people of those country, which can be good at times and other times — not so good, depending on the working conditions and labour benefits. As already noted, TNC’s are forever seeking ways to maximise profit and minimising expenses and costs. Manufacturing companies tend to invest in Third World countries, mainly because labour is cheap, and that there are minimum operating costs in Third World countries.

These manufacturing companies are notoriously known for their misconduct and human rights abuses in Third World countries. In other countries, TNC’s have been reported to pay people less than 11 cents an hour for hard labour. To be more precise, Nike (listed on the 2007 Fortune 500 largest companies) paid its workers 18 cents an hour in Indonesia, and sold their shoes in the US for approximately $130.00. Things were also not that different in Haiti, some workers were paid 2 cents an hour, making basketballs [13]. Many examples of this nature exist and the list is endless.

Transnational companies can be very racist and sexist too. For instance Dicken’s writes that women are sometime chosen over men for jobs, because there is the belief that women have fewer responsibilities than men, thus would not demand more pay. And that women are less likely to strike than males. Some companies, according to Dicken’s, hire "minority groups as a means of holding down wage costs and for ease of dismissal."[14]

Is there an Alternative?

It is time that those who are concerned with poverty and global inequality discuss viable alternatives to the present global economy. We need new institutions that fundamentally differ from the IMF and the World Bank. The main role of these new institutions would be to make sure that the global economy is not dominated by few countries or few companies. These new institutions would work to ensure that wealth is redistributed widely to those who need it the most.

Instead of ‘advising’ and encouraging countries to rapidly liberalise their economy, or forcing countries to destabilise their economy by opening up all their markets to foreign corporations; we could have institutions that oppose such destructive policies (Albert, 2004). If a country needs to strengthen its social infrastructure by improving their health services, building schools, roads and railways, and telephone lines, then so be it.

Michael Albert proposes that the IMF and the World Bank be replaced by an International Asset Agency (IAA) and a Global Investment Assistance Agency (GIAA). He argues that these new institutions would work for the benefit of humanity, based on solidarity, diversity and equity. These new institutions would "seek to direct the benefits of trade and investment disproportionately to weaker and poorer parties, not richer and more powerful ones."[15]

Albert notes that the new institutions "would advance democracy… not promote global trade at the expense of local economic development nor would they force Third World countries to open their markets to rich countries and to abandon efforts to protect infant domestic industries."

There would be no countries extracting wealth and natural resource from other regions to benefit only a handful; rather resources would be shared and distributed equally. The goal being to end poverty, while simultaneously promoting equity, solidarity and self-management.

Globalisation is not bad per se, the problem is how it is implemented and how it affects different people in different regions of the world. Albert write that, "capitalism globalisation seeks to…further benefit the rich and powerful at the expense of the poor and weak"[16]. People want to "globalise equity not poverty… solidarity not greed… diversity not conformity… democracy not subordination… sustainability not rapaciousness" [17].

People want ‘global justice’. The means of productions ought to be controlled by the people. People ought to participate in decisions that affect them. That is democracy; and that’s what globalisation should be about.

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4] J Stiglitz, Globalisation and its Discontents, p 12.

[5] P Dickens, Global Shift, p 529.


[7] M Castells, The Rise of the Network Society, p 118.

[8] HD Blake & RS Walters, The politics of Global Economic Relations p 107.

[9] M Castells, The Rise of the Network Society p 117.

[10] HD Blake & RS Walters, The politics of Global Economic Relations p 108.

[11] Ibid. p 119

[12] .

[13] M Parenti, Against Empire, p57.

[14] P Dickens, Global Shift, 471.

[15] M Albert, Parecon: Life after Capitalism, p 5.

[16] Ibid. p 7. [17] Ibid. p 2.

Reference: Albert, M, Parecon: Life after Capitalism. London, Verso, 2004. Blake, HD & Walters, RS, The Politics of Global Economic Relations, 4th edition (New Jersey: Prentice Hall. 1992). Buckman, G, Globalisation: Tame it or Scrap it? (New York, Zed Books, 2004) Castell, M, The Rise of the Network Society. 2nd edition (MA, Blackwell Publishers, 2000) Cohen, R &Kennedy, P, Global Sociology 2nd edition, (New York, Palgrave Macmillan, 2007). Dicken, P, Global Shift, Fifth edition, (New York, Guilford Press, 2007). Klein, N, Fences and Windows, (London, Flamingo, 2002) Parenti, M, Against Empire, (San Francisco, City Lights, 1995). Stiglitz, J, Globalisation and its Discontents, (London, Penguin Books 2002).

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