A Q & A on the WTO, IMF, World Bank, and Activism



Culled from work by Albert, Elaine Bernard, Peter Bohmer, Jeremy Brecher,
Dorothy Guellec, Robin Hahnel, Russell Mokhiber, Mark Weisbrot, and Robert
Weissman



We
recommend reading straight through, but if you want a specific question
answered you may wish to jump to it, below…


What
is trade?

The
logic of trade is simple. Suppose I can make wheat better than steel and you
can make steel better than wheat. If I then focus on wheat and you focus on
steel, we can trade together to exploit our respective talents to each do
better than if we didn’t trade. Similarly, if two countries have different
"comparative advantage" in the production of wheat and steel, and
they each make both wheat and steel for themselves, the total pile of wheat
and steel for the two countries will be less than if they specialized. Of
course, the extra output from specializing and trading has to exceed the costs
of negotiating the trade and sending the items, but if it does, than both
sides can get more from trading than not. Free trade, then, is simply trade
without taxes, tariffs, or other barriers or restrictions. The logic is that
since trade is good in that both parties can benefit relative to not trading,
restrictions that reduce trade are bad.

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When
and why is trade harmful?

First,
when two parties specialize and then trade to benefit from comparative
advantages, gains could be split to benefit the worst-off party more, divided
equally, or benefit the better-off party more depending on prices or what is
called "the terms of trade." Some prices could even shuffle all the
gains to one side. They could cause one side to be worse off then if they
hadn’t traded in the first place, as in many instances of colonialism. So in
the short-run, who benefits from trade and how much they benefit depends on
prices. One of the ills of international trade is that larger economies can
impose prices while smaller economies generally suffer the consequences. This
doesn’t only mean that the U.S. and Germany can overwhelm Thailand and
Guatemala. Of the 100 largest economies in the world, 52 of them aren’t
countries, they are corporations.

Moreover,
with no restrictions on international investment, firms will force countries
to compete against one another. Every country and community is pressured to
lower wages, lower taxes on business, and reduce environmental regulations if
they are to attract and hold businesses. This is what has been called the race
to the bottom.

Additionally,
in this system communities can be decimated if what they have specialized to
produce can no longer be sold profitably on the world market. So, for example,
if free trade means that U.S. corn has a lower price than Mexican corn,
U.S.-made corn will be imported into Mexico and those who produce corn in
Mexico may not only lose their land and livelihood, but be forced to leave
their communities in search of employment elsewhere.

Or
suppose two countries trade and prices are such that both enjoy immediate
material gains. However, suppose the division of labor allows one country to
develop and diversify its economy, but forces the other country to focus
overwhelmingly on one product, perhaps even a product that has no future. One
country specializes in coffee or sugar and the other specializes in computer
software. As a result, the continual downward pressure on prices of sugar or
coffee as well as limited linkage to other industries causes inequality to
persist and widen.

Similarly,
two countries could trade and one moves in ecologically positive directions,
but the other focuses in areas with horrible environmental, labor, or social
consequences. Additionally, whether an economic policy benefits only from
profits rather than from social quality of life and ecological effects has
much to do with domestic agendas in each country. If one country has death
squads to silence opposition (paid for by the government of the other
country), its labor costs can be pushed to rock bottom, children can be
enslaved, toxic waste can be dumped.

Regarding
the World Trade Organization (WTO)—its agenda prioritizes the privatization
of education, health, welfare, social housing, and transport. According to the
U.S. trade delegation, "The United States is of the view that commercial
opportunities exist along the entire spectrum of health and social care
facilities, including hospitals, outpatient facilities, clinics, nursing
homes, assisted living arrangements, and services provided in the home."
Salivating in the wings of the WTO talks were U.S. multinationals, including
the pharmaceutical industry, the long-term care sector, and HMOs. The WTO
seeks to create a new privatization bonanza in the health sector, as but one
instance of its overall agenda. Multinational and transnational corporations
are lining up to capture the gross domestic product that governments currently
spend on public services such as education and health. The long tradition of
European welfare states based on solidarity through community risk-pooling and
publicly accountable services is being dismantled.

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What
is the WTO?

The
WTO is an international organization of 134 member countries that is a forum
for negotiating international trade agreements and the monitoring and
regulating body for enforcing agreements. The WTO was created in 1995, by the
passage of the provisions of the "Uruguay Round" of the General
Agreement on Tariffs and Trade (GATT). Prior to the Uruguay Round, GATT
focused on promoting world trade by pressuring countries to reduce tariffs.
But with the creation of the WTO, this corporate-inspired agenda was
significantly ratcheted up by targeting so-called "non-tariff barriers to
trade"—essentially any national or local protective legislation that
might be construed as impacting trade.

The
idea is simple—instead of only imposing on third world countries low wages
and high pollution due to their weak or bought-off governments, why not weaken
all governments and agencies that might defend workers, consumers, or the
environment, not only in the third world, but everywhere? Why not remove any
efforts to limit trade due to its labor implications, ecology implications,
social or cultural implications, or development implications, leaving as the
only criteria whether there are immediate, short term profits to be made? If
national or local laws impede trade—say an environmental or health law, or a
labor law—the WTO adjudicates, and its entirely predictable pro-corporate
verdict is binding. The WTO trumps governments and populations on behalf of
corporate profits.

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Why
are people opposed to the WTO?

There
is no denying that someone could oppose the WTO out of narrow
self-interest—saying, in essence, my country ought to be able to do as it
domestically prefers, but other countries should be entirely beholden to this
world oversight on behalf of corporations (sort of the way the U.S. government
relates to international law and the World Court: it’s for everyone else).
But the view of movements against the WTO should be that social, labor,
ecology, cultural, and other concerns take precedence over profit-making
everywhere, not solely in one’s own neighborhood.

The
real debate between WTO advocates and their left critics is not about
protectionism, therefore, but about who will be protected from the ravages of
unrestrained competition. The WTO has no rules to guard those who labor or to
protect long-term development or to foster cultural sustainability or
diversity. Without such standards, the majority of people can actually lose
from expanding trade, not only relative to a fair ideal, but relative to
abstaining entirely.

The
critic’s theoretical understanding of the WTO as a vehicle only moved by
corporate profit-seeking logic is borne out from the WTO’s history to date.
In every case that has been brought to the organization challenging
environmental or public safety legislation on behalf of corporations, the
corporations have won. When foreign commercial shrimp fishing interests
challenged the protection of giant sea turtles in our endangered species act,
the turtles didn’t stand a chance. When it was Venezuelan oil interests
versus the U.S. Environmental Protection Agency’s air quality standards for
imported gasoline, the oil interests won. When it was U.S. cattle producers
against the European Union’s ban on hormone-treated beef, European consumers
lost. The list goes on.

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But
don’t we favor regulation of trade?

Yes,
but not the type of regulation proposed by the WTO. The WTO is about
protecting corporate ownership and monopoly over the patenting of plants,
processes, seed varieties, drugs, software, and all capital, fostering its
exchanges of goods despite any ill effects, and breaking down any protections
of labor, the environment, health and safety, that might limit corporate
profit making.

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Why
do some demand new policies while others demand shutting down the WTO?

Some
critics argue that the WTO trade liberalization program is fundamentally
flawed and we should abolish this dangerous organization. They urge building
global resistance and constructing global solidarity from below. Other people,
in particular much of organized labor, argue that while the WTO trade
liberalization program is deeply flawed, it’s now well established as a
powerful organization and that the concept of negotiated trade regulation is
vital to the health and welfare of the world community. They argue that if
core labor rights, environmental protections, and what the Europeans refer to
as a "social clause" was inserted into the WTO’s mandate and
practice, it could be transformed.

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What
are ten key reasons to oppose or even shut down the WTO?

1. The WTO
prioritizes trade and commercial considerations over all other values. WTO
rules generally require domestic laws, rules, and regulations designed to
further worker, consumer, environmental, health, safety, human rights,
animal protection, or other non-profit centered interests to be undertaken
in the "least trade restrictive" fashion possible—almost never
is trade subordinated to these noncommercial concerns

2. The
WTO undermines democracy by shrinking the choices available to
democratically controlled governments, with violations potentially punished
with harsh penalties

3. The
WTO actively promotes global trade even at the expense of efforts to promote
local economic development and policies that move communities, countries,
and regions in the direction of greater self-reliance

4. The
WTO forces Third World countries to open their markets to rich
multinationals and to abandon efforts to protect infant domestic industries.
In agriculture, the opening to foreign imports will catalyze a massive
social dislocation of many millions of rural people on a scale that only war
approximates

5. The
WTO blocks countries from acting in response to potential risk—impeding
governments from moving to resolve harms to human health or the environment,
much less imposing preventive precautions

6. The
WTO establishes international health, environmental, and other standards at
a low level through a process called "harmonization." Countries or
even states and cities can only exceed these low norms by winning special
permission, rarely granted. The WTO thereby promotes a race to the bottom
and imposes powerful constraints to keep people there

7. WTO
tribunals rule on the "legality" of nations’ laws, but carry out
their work behind closed doors. The very few therefore impact the life
situations of the many, without even a pretense at participation,
cooperation, and democracy

8. The
WTO limits governments’ ability to use their purchasing dollars for human
rights, environmental, worker rights, and other non-commercial purposes. The
WTO requires that governments make purchases based only on quality and cost
considerations. Not only must corporations operate with an open eye
regarding profits and a blind eye to everything else, so must governments
and thus whole populations

9. WTO
rules do not allow countries to treat products differently based on how they
were produced—irrespective of whether they were made with brutalized child
labor, with workers exposed to toxins or with no regard for species
protection

10. WTO rules
permit and, in some cases, require patents or similar exclusive protections
for life forms. In other words, the WTO does whatever it can to promote the
interests of huge multinationals—there are no principles at work, only
power and greed

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What
short-term alternatives are there?

The
immediate alternative to the WTO is for international cooperation to restrain
out-of-control global corporations, capital, and markets by regulating global
corporations and markets to make it possible for people in local communities
to control their own economic lives. The alternative is to promote trade that:

  • reduces
    the threat of financial volatility and meltdown

  • enlarges
    democracy at every level from the local to the global

  • defends
    and enriches human rights for all people

  • respects
    and fosters environmental sustainability worldwide

  • facilitates
    economic advancement of the most oppressed and exploited groups


Rather then the global economy being regulated by small elites in corporate
boardrooms, we should have bottom up commissions to restrict trade when it is
socially or environmentally detrimental. Further short-term alternatives to
the WTO are to:

  • encourage
    domestic economic growth and development, not domestic austerity in the
    interest of export-led growth

  • encourage
    the major industrial countries to coordinate their economic policies,
    currency exchange rates, and short-term capital flows in the public
    interest

  • establish
    standards for and oversee the regulation of financial institutions by
    national and international regulatory authorities, encouraging the shift
    of financial resources from speculation to useful and sustainable
    development

  • establish
    a tax on foreign currency transactions— known as a "Tobin
    tax"—to reduce the volume of destabilizing short-term cross-border
    financial flows and to provide pools of funds for investment in long-term
    environmentally and socially sustainable development in poor communities
    and countries.

  • create
    public international investment funds to meet human and environmental
    needs and ensure adequate global demand by channeling funds into
    sustainable long-term investment

  • develop
    international institutions to perform functions of monetary regulation
    that are currently performed inadequately by national central banks, such
    as a system of internationally coordinated minimum reserve requirements on
    the consolidated global balance sheets of all financial firms. 

The
alternative to the WTO is to reorient international financial institutions
from the imposition of austerity and destructive forms of development to
support for labor rights, environmental protection, and rising living
standards. The alternative is for wealthy countries to write off the debts of
the most impoverished countries and to create a permanent insolvency mechanism
for adjusting the debts of highly indebted nations. The alternative is to use
regulatory institutions to help establish public control and citizen
sovereignty over global corporations and curtail corporate evasion of local,
state, and national law, such as establishing a binding Code of Conduct for
Transnational Corporations that includes regulation of labor, environmental,
investment, and social behavior. The alternative is to renegotiate WTO, NAFTA,
and all other agreements regulating international trade to reorient trade and
investment to be means to just and sustainable development.

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What
are the IMF and the World Bank?

In
the aftermath of World War II, besides the United Nations, the important
international economic organizations created at the conference held at Bretton
Woods were the International Monetary Fund (IMF) and the International Bank
for Reconstruction and Development (IBRD), now known as the World Bank. The
IBRD- World Bank was established to help finance the reconstruction of
war-torn Europe and the development of the poorer countries of the world. The
IMF mandate was to regulate an international monetary system based on
convertible currencies to facilitate global trade while leaving sovereign
governments in charge of their own monetary, fiscal, and international
investment policies. Significantly, the effort to establish the International
Trade Organization (ITO) ended in failure, leaving the "minimalist"
General Agreement on Tariffs and Trade (GATT) as its surviving remnant. But
all that was more than 50 years ago. The IMF has now become the "point
person" for efforts to "liberalize," or deregulate the
international economic system.

The
IMF has prescribed the same medicine for troubled third world economies for
two decades now:

  • Monetary
    austerity: Tighten the money supply to raise internal interest rates to
    whatever heights are needed to stabilize the value of the local currency

  • Fiscal
    austerity: Increase tax collections and reduce government spending
    dramatically

  • Privatization:
    Sell off public enterprises to the private sector

  • Financial
    liberalization: Remove restrictions on the inflow and outflow of
    international capital as well as restrictions on what foreign businesses
    and banks are allowed to buy, own, and operate.

Only
when governments sign this "structural adjustment agreement" does
the IMF agree to lend enough  to prevent default on international loans
that are about to come due and otherwise would be unpayable. Arrange a
restructuring of the country’s debt among private international lenders that
includes a pledge of new loans.

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What
is the effect of the IMF?

The
predictable consequences have always been disastrous. Tight monetary policy
and skyrocketing interest rates not only stop productive investment,
stampeding savings into short-run financial investment instead of long-term
productive investment, it keeps many businesses from getting the kind of
month-to-month loans needed to continue even ordinary operations. This fosters
unemployment and drops in production and therefore income. Fiscal
austerity—raising taxes and reducing government spending—further depresses
aggregate demand, also leading to reductions in output and increases in
unemployment. Likewise, if any of the government spending eliminated was
actually improving people’s lives, then reductions in those programs
eliminates those benefits. Privatization of public utilities, transport, and
banks is always accompanied by layoffs. Whether productivity and efficiency is
improved in the long run depends on how badly the public enterprises were run
in the first place, and if private operation proves to be an improvement.

One
of the most glaring inefficiencies of "structural adjustment," even
on its own terms, has been that in its haste to reduce public sector budgets,
the IMF has seldom taken the time to try and distinguish between poorly run
and well run public enterprises. In its crusade to privatize, the IMF
routinely lumps efficient public enterprises together with "white
elephants" that do provide poor service to the public while paying
bloated salaries to relatives and political supporters of ruling political
parties. The IMF never considers the possibility that private replacement
might be even worse.

Hasty
removal of restrictions on international capital flows makes it easier for
wealthy citizens and international investors to get their wealth out of the
country, i.e., removal of "capital controls" facilitates capital
flight, further reducing productive investment, production, income, and
employment. Removing capital controls further exposes the local economy to the
vicissitudes of global capital mobility, including the disease of
"contagion."

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How
do we change such important institutions as the global economy?

The
same way one wins a new stoplight on a busy street, wins a pay raise, wins an
affirmative action law, or ends a war—by raising social costs that the
policy makers find so odious and dangerous that they feel they must give in
lest the costs climb even higher. What do elites care about even more than
they care about these international agencies? Not much—it’s true, but one
thing is the overall stability of their material advantage and power. Pursuing
WTO agendas is something corporate and political elites want to do, there is
no denying that. On the other hand, if doing so polarizes populations into
movements that threaten not only these policies but even the underlying
requisites of profit-making and governing, that is too high a price to pay.
They do not want to awaken a "sleeping giant"—the populations that
they govern and exploit.

So
we raise social costs by educating a growing public regarding the WTO and
other global financial institutions and by channeling the resulting anger and
aspirations into social movements that challenge the WTO and local
government’s business as usual. What will make these movements most
compelling is if they clearly embody the threat to

  • grow
    continuously

  • become
    steadily more militant

  • diversify in
    focus from the WTO to international trade more broadly, to international
    relations, and finally to domestic economic policies and arrangements as
    well

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What
is the relation between capitalism and institutions like the WTO, IMF, and
World Bank?

Capitalism
is an economic system defined by private ownership of the means of production,
corporate workplace structure, and market allocation. These defining features
contour much of what can and will happen in capitalist economies. Some
implications are: that those who own means of production will accrue vast
profits and hold most power; that those who manage and otherwise monopolize
daily decision-making will have considerable income and power as well; and
that those who only obey orders and carry out labor defined by others will be
overwhelmingly subordinate in income and in power. Corporations will dominate
economic and social life by creating a virtual dictatorship of the owners and
administrators of workplaces, and by corrupting political relations with
commercial values and pressures in pursuit of profits. Citizen’s behaviors
will be pushed by market competition toward individualist selfishness and
outcomes will bias from collective fulfillment toward private profit.

Another
mark of capitalism is the market-driven competitive pursuit of profit among
capitalists and the use of every means they can muster to defend and enlarge
their advantage relative to workers. To further both agendas, various
institutions are established. In the international realm these include the
WTO, IMF, and World Bank, each a natural outgrowth of the desire of the most
powerful capitalists to (a) dominate their own economies without restraint and
(b) extend their profit seeking as widely internationally as they are able to,
again, without restraint.

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What
is an alternative to capitalism and markets?

Ultimately,
if we don’t like international agencies because they elevate corporate
profit over popular well-being, private power over democratic participation,
and short-run expediency for the few over long-run fulfillment and
sustainability for the many, then we should also reject private ownership,
corporate structure, and markets on the exact same grounds.

But
what alternatives are there? This is controversial, of course, but an
alterntive economy might include things like: remuneration according to effort
and sacrifice rather than according to private property, power, or output;
jobs balanced for quality of life and empowerment plus workers and consumers
council democracy rather than hierarchical corporate structure and
authoritarian administration from above; and participatory cooperative social
planning rather than individualist, corporatist, competitive market exchange.

Movements
for short-run program such as reforming or eliminating the WTO can benefit
greatly from orienting their analyses, program, and strategies in tune with
longer-run aims. This increases the likelihood of members sustaining hope and
commitment; increases the threat that the movement’s growth poses to elites,
making it more compelling and powerful; and helps to insure that today’s
victories lead to further gains tomorrow and ultimately to a new economy.

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