Rasha Abu Zaki

The Bretton Woods Conference was held 73 years ago. Ever since, the institutions that emerged from this conference have witnessed a number of transformations, faced waves of criticism and engaged in self-criticism, and expanded their influence and promoted their financial policies across a large number of countries all over the world. Despite the financial character of these institutions, their impact transcended the economy to encompass culture, society, and human rights among others.

In 1944, the United States was on its way to become the world’s superpower. After going through several fluctuations that included phases of economic stagnation, the United States managed through several international institutions to almost unilaterally control the market and turn the rest of the world, both regimes and people, into tools that guarantee maintaining its unipolar position while propagating a number of concepts that give the false impression of serving humanity whereas they solely serve its own agenda.

The institutions that emerged from Bretton Woods all serve more or less the same purpose, which is to impose on states, economies, and societies the policies that guarantee the survival of the capitalist system and the concentration of wealth and political power in addition to creating a value system that serves this end. This applies to the main institutions such as the United Nations, the World Bank, and the International Monetary Fund as well as different loaning funds and organizations and international credit rating agencies.

The methodologies used in the studies conducted on a number of economic models demonstrate the influence of the values promoted by these institutions. For example, class discrepancies and social inequalities are studied in relation to the market so that distribution and consumption criteria replace of those of production modes and relations. This does not come as a surprise since markets have become the essence of the economy in the age of globalization. Based on this approach, revenue distribution is not calculated through estimating the total wealth then examining individual shares of the revenue, but rather through incomes and consumption. Monopoly is penalized only when it violates competition laws, which are the main principle based on which markets operate. Meanwhile, corruption is attributed to defective public budgets and too much spending on social services as well as an oversized public sector. The concept of social justice is also reconsidered as it is transformed from a means to measure equality into a means to measure recognition of distinction and difference[1].

The International Monetary Fund and the World Bank are among the most prominent international financial institutions [2]  in addition to the World Trade Organization. The Bank and the Fund present themselves as[3]  sister institutions that share the same purpose, which is to raise the living standards of member states. The two institutions adopt complementary methodologies to achieve this goal for while the Fund focuses on macro-economics, the Bank works on long-term economic development and the elimination of poverty. However, surveying the results of the policies imposed by the Fund and the interventions of the Bank reveal substantial damage and limited benefits. Among the most controversial policies promoted by the two institutions is that of structural reform, which is usually welcome by regimes suffering from economic crises and frowned upon by average citizens. This policy has been lately prescribed as the solution for all economic problems regardless of the specificity of each crisis, which renders the unified IMF instructions impossible to apply on all cases. The IMF has a fixed set of procedures that it promotes as the answer to balance of trade deficits, drop in growth rates, and budget deficit and they mainly include lifting subsidies on commodities and services, privatization, freezing wages, devaluating the local currency, increasing taxes, downsizing the public sector, and reducing public spending on social services.

Countries in crises are supposed to be able after applying those procedures to pay their debts, but this is accompanied by remarkable deterioration in economic conditions and living standards and average citizens are the ones that eventually suffer the most. Meanwhile, the state which agrees to abide by IMF rules becomes trapped in this cycle for good. Falling prey to the policies imposed by international financial institutions implies turning a blind eye to the fact that economic crises are never created in a vacuum and are not an act of fate, but are rather the product of a number of local policies that are plagued with corruption, nepotism, monopoly, lack of accountability, and mismanagement, all of which being problems that require addressing from the inside through an overall structural makeover.

While politics is separated from economics and both are separated from social issues, a new concept developed based on the assumption that the most advanced country that can serve as a role model for “all” is the one in which policies are designed and implemented to serve the economy, capitalism in this case, and that countries which want to survive need to emulate this model[4] .

However, the extreme discrepancy between rich and poor countries across the world as well as the rich and the poor within the same country, growing social upheavals, the drop in economic indicators, and the adoption of policies that only aggravate existing crises are all factors that demonstrate the failure of the global system. The magnitude of consecutive economic crises demonstrate that the distribution of wealth in accordance with the dominant system failed drastically, which was most flagrantly seen in the global financial crises. This leads to the necessity of establishing an alternative economy whose structure and institutions are founded on a totally different set of principles whether in politics, economics, or human rights.

All the above brings to the forefront a number of questions about the job of international financial institutions. Some see those institutions as the channel through which wealth can be distributed so that the world is kept divided into rich and poor states while others believe that its main role is to give a human face to capitalism through promoting development and the elimination of poverty while loaning money as a means of solving economic crises and introducing reform. Many argue that international financial institutions are the ugly face of globalization since they mainly exploit the majority to serve the interests of the minority. For those, these institutions have to be resisted especially in developing countries that are most affected by their policies.

Regardless of the level of discontent with the performance of international financial institutions, it is obvious that a considerable number of economists, analysts, and researchers agree that these institutions have a serious problem. It is interesting that criticism of these institutions is no longer confined to leftists as was the case before, but now even extends to liberals and experts from inside the institutions themselves. Owing to the different backgrounds of critics, there are different approaches to solving the problems arising from the performance of these institutions. Some believe that reforms can be introduced to the institutions so that they can redress their past mistakes while others argue that a new international charter has to be drafted altogether including radical economic changes and new economic institutions that replace the existing ones.

Towards a new Bretton Woods?

 Following the 2008 global financial crises, demands for applying radical changes to international financial institutions were put forward by both leftists and liberals. Such demands ranged from introducing reforms to those institutions to establishing new institutions altogether. Criticism levelled at international financial institutions underline their major drawbacks, hence giving an insight into alternatives that can reverse the economic process into one that works for the best interest of the people. Jaime Guajardo, Daniel Leigh, and Andrea Pescatori, all from the IMF, studied the austerity programs promoted by the Fund and implemented in 17 countries throughout the past 30 years. They focused in their study not only on patterns of public debt, but also on agendas of governments when they accepted these plans compared to what those governments implemented on the ground. The study underlined the negative impact of austerity programs on local economies, which constitutes a serious warning to policymakers in the present time[5].

One of the most prominent critics of international financial organizations was World Bank chief economist and Nobel laureate Joseph Stiglitz who argues that it took the world 15 years and a world war to realize it was time to address the drawbacks of the global financial system that contributed to the Great Depression, but while the United States and Britain dominated in Bretton Woods, the global scene is quite different at the moment. “Likewise, the old Bretton Woods institutions came to be defined by a set of economic doctrines that has now been shown to fail not only in developing countries, but even in capitalism’s heartland. The forthcoming global summit must face these new realities if it is to work effectively toward creating a more stable and a more equitable global financial system”[6].

Economist José Antonio Ocampo argued that the structure of the international financial system needs radical reform, yet added that the call for reform implies two major problems. First, those calls lack substance for in case a Breton Woods II conference is held, no one is certain of the issues that should be discussed. Second, the whole process was faulty from the beginning when most countries were excluded from the original Bretton Woods Conference. Reform, Ocampo explained, will never be possible without giving voice to developing countries and placing them on equal footing with their developed counterparts. International financial institutions have to work on introducing these reforms, the most significant of which should be addressing financial fluctuations, stopping the accumulation of capital and surplus at the time of financial boom, and preventing asset bubbles from triggering credit expansions. For Ocampo, such a change needs to be based on an efficient network of local and regional authorities. This should also include a “truly international supervision of financial institutions with a global reach”[7].

American economist Peter Blair Henry argued five years after the global economic crisis that it is very difficult to restore trust in international financial institutions that emerged from the Bretton Woods Conference, especially in the light of the economic slowdown in developed countries. For Henry, developed countries did not want to let go of their influence on international financial institutions for a long time even as their own economies were facing challenges. These countries also harmed the global economy as result of their intervention in developing countries. Henry believes that a solution is only possible if leaders of both developed and developing countries are committed to economic reform. He adds that global economy will never achieve this reform without giving emerging economies an actual voice in running the world. Only then can trust be possibly restored and can international institutions start gradually regaining their legitimacy[8].

Former advisor to the IMF board and professor of global economic governance Ngaire Woods provides in her book Globalizers a number of suggestions to address the defects of international financial institutions, especially the World Bank and the International Monetary Fund. She argues that the United States controls these institutions in accordance with its expansionist ambitions to which the rest of the world is forced to adapt. In one of her articles, she explains that the delay in introducing reforms to the International Monetary Fund is irritating several countries such as Brazil, Russia, India, and China as their contributions to the Fund’s emergency loan pool have reached 15.5% after the global financial crises. These countries have thus become among the top 10 contributors in the fund, yet have not been given the voting power and greater status they were promised as part of the new structure. Therefore, the promises of the G-20 to protect poorer countries and societies from the impacts of economic crises remained unfulfilled. Even though the 2008 global crises underlined the importance of global cooperation to regulate funding and assuage the impact of crises on vulnerable communities, the tools and resources required to make that possible have not been made available. Instead, countries are starting to find their own ways “to manage finance, create pooled emergency funds, and strengthen development finance – an outcome that heralds a more fragmented and decentralized set of regulatory regimes and a modest de-globalization of finance and aid”[9].

Such a reality started shaking the foundations of economic globalization that was severely criticized and held responsible for the crises, especially the American model. Economist Harold James argued, however, against the generalization of failure. For James, the global financial crises was the reason why the American capitalist model lost its credibility then it was Europe’s turn and apparently Asia is next. Following the mortgage crises and the collapse of Lehman Brothers, James explained, the United States became the most flagrant example of failure. The reputation of the American model was already affected by the invasion of Iraq then the economic crises dealt it a fatal blow. James believes that a question has to be posed in relation to what follows the crisis: “Coming after the failure of state socialism, does this mean that there is no correct way of organizing an economy?” He, however, ends his article without answering the question[10].

Alternative institutions and understanding changes in production’s structure:

Upon imaging the shape of international institutions that can emerge from an alternative economy, the first issue that comes to mind is that of cooperation in and among the existing institutions over matters of concern for member states such as countering terrorism funding, money laundering, or tax evasion. It then becomes obvious that major capitalist countries are capable of imposing sweeping policies that acquire a sense of urgency whenever the survival of the capitalist system is at stake or whenever the profits of corporations or the minorities that benefit from the dominant system are threatened.

The process needs to be reversed here. This can start with looking into this cooperation that currently works in favor of the center through internationalizing the demands of the privileged minority and examining the possibility of utilizing the same form of cooperation in order to put forth the demands of the majority and endow them with the same urgency that characterizes the interests of capitalist powers. It is possible, but there is a major problem: if the structure of global economy is either based on a unipolar order or a multi-polar order that relies on the accumulation of capital in the hands of the few, the prioritization of the demands of the majority will require a great deal of lobbying as well as powerful social movements that can take the world to such new level.

This requires gaining access to lobbying and response mechanisms within the international cooperation system whether on the local, regional, or international level in order to acquire knowledge about the channels that need to be used in order to demand designing and implementing policies that guarantee social justice for example. It is important in this regard to take into consideration that response to demands should not just be linked to the specific issue at hand, but should be applied on a broader scale to guarantee sustainability. In order to render particular economic, social, political, or environmental development sustainable, the involvement of institutions that have the legitimacy to implement programs and the connections to network with relevant associations is absolutely necessary.

A question that has to be asked is what would force countries to agree to reforms that do not serve the interests of their elites. The answer lies in the ability of majority to put pressure on the minority so that the former would eventually have to reach a compromise that involves putting an end to accumulation of wealth and subordination to foreign interests. In general, fear of popular upheaval has always been among the main reasons behind change of policies in several countries where compromise is seen as wiser than risk and uncertainty.

It is noteworthy that when international financial institutions imposed harsh policies on people in several countries, they were not able to do so because the people agreed, but only because they know how to form the right alliances through which they can cooperate together and lobby until their demands are met. If these institutions can impose the will of the minority just because they have the financial power, the will of the people can be much more powerful if those people are properly organized within a coherent structure that is well-versed in the strategies of lobbying and whose members work in close cooperation.

Achieving social justice[11]  and the fair distribution of wealth requires an economic system that is founded on solidarity. This necessitates dissociating regimes of developing countries from institutions of economic imperialism. Regimes in developing countries, especially those that lost their credibility and/or legitimacy, try to make up for their weakness through allying with global capitalist centers. This is done through forging alliances with businessmen on one hand and implementing capitalist policies such as privatization and market liberation on the other hand. Those regimes, therefore, acquire their legitimacy from their newly adopted ideology that is based on the culture of globalization, clientalism, and patronage. Such policies are accompanied by a set of procedures that are meant to consolidate the regime’s power and crush any form of opposition including repression and violation of human rights. The entire formula guarantees both the accumulation of wealth in the hands of ruling elite and its allies and the unthreatened power of the regime[12].

This reality necessitates radical changes that separate between politics and the personal interests of the ruling elites in order to eliminate the “fat cat” phenomenon. Establishing a coherent front for the global South requires the participation of its people since the regimes of many countries in this part of the world are not democratic and part of the their authoritarian structure involves allying with the comprador sectors whose interests are directly linked with global capitalism and imperialist expansion[13]. That is why it is necessary to go beyond the structure of the nation-state and focus on the establishment of regional institutions with political and economic goals that aim at improving the living conditions of the people and empowering disenfranchised classes.

While the drawbacks of international financial institutions were forcefully highlighted with consecutive crises that, in turn, underlined the ordeal of capitalism, few attempts were made at envisioning the structure of alternative international institutions to replace the existing ones. Egyptian economist Samir Amin, one of the few who provided alternatives, called for establishing an institution whose main role would be determining the rights of countries in sharing and utilizing natural resources, which required estimating the value of these resources. Such institution will be responsible for deciding the shares of different regions in trading in manufactured goods and will also promote the industrialization of underdeveloped areas as a main condition for improving the living conditions of average citizens and the working class[14]. This new structure should involve the establishment of a new money market system where cash surplus is channeled towards productive investment in the peripheries. This will replace the current unregulated market that works in the opposite direction as it promotes exporting money from the South to the North, especially the United States that covers the deficit in its balance of international payments through controlling those markets. The current global monetary system, which is now obsolete, needs to be annulled and replaced by local monetary systems instead of the US dollar being the global currency. This can be done in West Europe, East Europe, and Third World regions while providing relative stability guarantees in exchange rates and empowering local money markets[15].

In this context, it is possible to revise the international aid program, democratize the United Nations system, and establish a global tax system through the management of natural resources of the distribution of revenue associated with them. Such arrangement can eventually lead to the establishment of an international parliament in which the communal interests of the entire world can be represented. However, such reforms will never materialize on the international level without the formation of coherent progressive powers within different communities across the world. Such powers need to have the necessary awareness and knowledge that enable them to propose realistic alternatives that have the ability to reform the global system in the desired direction. Unless such powers start emerging and work on the ground in their respective local communities as a start, all talk about alternatives to international institutions will remain sheer ink on paper and actual development will never materialize[16].

Proposing alternatives to existing international institutions should be based on envisioning the policies needed first by the people and second by regimes, the latter having to perform their natural role of improving citizens’ living conditions. It is important to realize that offering an alternative does not mean coming up with a number of reforms that would change economic indicators while overlooking the social context. It is rather a comprehensive process that encompasses a set of cohesive policies which are meant to effect structural changes in economic, political, and social institutions and set the foundations for sustainable development for the purpose of achieving social justice. Such process starts at the local and regional levels then expands until it manages to establish internal institutions that not only criticize linking capitalism with the interests of the few, but also works on implementing policies founded on the fair distribution of global revenue and establishing international funds tailored towards development and channeling people’s skills towards production to make up for decades during which they were only consumers of the products of capitalist centers. This means that human beings and their interests should be at the core of the policies designed by international institutions under an alternative economy. This economy will no longer revolve around the prosperity of the few, but will instead manage the process of production in each country in a way that guarantees protecting the rights of citizens and improving their living conditions.

Development programs proposed and implemented by alternative international institutions have to correspond to the actual needs of the people whether in terms of improving their living standards or developing their creative and innovative skills. It is also important for these institutions to end their subordination to capitalist centers through focusing on local production and attempting to gradually achieve self-sufficiency especially in food products. In addition, alternative institutions need to survey global natural resources and redistribute their revenues through deductions that can take the form of taxes to be collected in funds whose purpose would be the redistribution of wealth between countries that are extremely rich in resources and others that have none. With current technological advancement, international institutions need to reconsider the basis of intellectual property so that knowledge is no longer monopolized and so that products that serve humanity can be remanufactured. This especially applies to pharmaceuticals, medical equipment, and scientific research among others.

Alternative international institutions are required to refute all the myths propagated by the existing entities about capitalism and neo-liberalism being the only option. This can be done through funding studies that examine the markets, social classes, and the history of exploitation under the capitalist system while making sure the researchers provide an accurate account of the economic and social crises in different societies and the specificity of each society and how crises can be addressed accordingly. Alternative institutions would also play a major role in changing the status of unions through legalizing them on the international level and raising awareness about their role in protecting the rights of workers. This should be accompanied by studies that examine the problems faced by working classes, how they can be addressed, and the means of empowering workers through enhancing their production skills, eliminating monopolies, improving their working conditions, and ending wage discrepancies.

New international institutions: Utopia or a future vision?

Is it utopian to assume that it is possible to put an end to global capitalism? Samir Amin answers by saying that it is only realistic to attempt putting an end to global capitalism and that any step in this direction is bound to be welcome by the people, hence will lead to the formation of the powers that will eventually start lobbying for change. The first step is to provide the conditions necessary for giving rise to the ideological and political powers that are capable of facing the challenges of the dominant discourse. Those challenges include the dialectic of the relation between the international and the local, the dialectic of the relation between political democracy and social progression, the dialectic of the relation between economic efficiency and the principle of equality and solidarity, and the revival of global socialism in the light of the answers for the previous questions[17] .

Despite the possibilities of cooperation and solidarity and the potential of raising people’s awareness about the drawbacks of capitalism, the global system is still several steps ahead. Alternatives[18]  can only be established by parties that were harmed by the dominant policies. The impact of capitalism, however, is not enough for it needs to be accompanied by studying the mechanisms of change in economic models, the challenges facing transformation into an alternative system, and the tools to be used for resisting the dominant discourse.

Looking at economic milestones in contemporary history, three people will come to mind as having been the most influential. The first is Adam Smith in the mid-18^th century when the global system was moving from agriculture to industry and services. That time witnessed that emergence of the bourgeoisie as a rising class that prioritized its interests and wanted to guarantee the continuation of its financial power. It was in that context that Adam Smith called for the liberation of markets and opening them to trade. He also argued that the market has the ability to regulate itself. Second, Karl Marx appeared in the mid-19^th century when the Industrial Revolution was spreading across Europe and exploitation was at its peak in factories and farms and workers and farmers were getting more marginalized and impoverished. Third, John Maynard Keynes appeared in the 20^th century and established Keynesian economics, which was the product of the economic changes that took place at the time as economic crises increased and authoritarian regimes emerged in several countries. Keynes’ theory was based on promoting democracy in return for assigning the state the responsibility for protecting the market from failing to regulate itself.

The present time witnesses a state of economic regression. The United States whose economy was founded on Smith’s principles is now turning against him through going back to protectionism, closing its markets, and withdrawing from trade agreements. Europe is shaken by crises, debts, separatism, and disintegration while countries that constituted bastions of communism are now typical examples of exploitation and the violation of workers’ rights such as China. Meanwhile, economic models are witnessing major transformations as demonstrated in the shift from commodity production to mental production as labor forced is being largely replaced by machines. Such transformation will entail a shift in the exploitation of labor force, but since there are no theories yet to measure the cases of exploitation in mental labor or the value of its surplus, it is still hard to determine how owners of capital can benefit in comparison to the losses sustained by producers. This is especially the case since capitalism in its current form is working on monopolizing mental production until it is becomes part of the consumption market.

Intellectual chaos, lack of proper theories, and the inability to analyze economic changes portends a mysterious future for which preparations needs to be made. Alternatives, on the other hand, require a forceful revival that discards the current intellectual regression. From these alternatives, local, regional, and international institutions will emerge to tackle issues that are being overlooked today and to delve deeper into problems that are only being addressed superficially by existing entities. These institutions will set the interests of people as their topmost priority and will make sure that regimes see to that. As Paul Krugman said, “A country is not a company” since while a company prioritizes private profit a country should exclusively make common good its one and only responsibility.          ــــــــــــــــــــــــــــــــــــــــــ

[1] Fawaz Trabulsi. Social Classes in Lebanon: Acknowledging a Status Quo [Arabic]. Heinrich Böll, 2014.

[2] Fathi al-Shamkhi. “Post-Arab Spring and the Role of International Financial Institutions in Increasing Social Disparities [Arabic].” Rosa Luxemburg Foundation and Arab Forum for Alternatives, 2016.

[3] International Monetary Fund website.

[4] Samir Amin. The Virus of Liberalism [Arabic]. Dar al-Farabi, 2003.

[5] Robert J. Shiller. “Does Austerity Promote Economic Growth?” Project Syndicate, January 18, 2012.

[6] Joseph E. Stiglitz. “Let’s Throw Away the Rule Book”, The Guardian, November 6, 2008.

[7] Josè Antonio Ocampo. “What Should Bretton Woods II Look Like?”, The Independent, November 4, 2008.

[8] Peter Blair Henry. “The Global Trust Deficit”, Project Syndicate, Project Syndicate, July 1, 2013.

[9] Ngaire Woods. “Global Institutions after the Crisis”, Project Syndicate, September 6, 2013.

[10] Harold James. “Schadenfreude Capitalism”, Politico, November 1, 2012.

[11] Salama Keileh. “Social Justice and Alternative Economy [Arabic].” Rosa Luxemburg Foundation and Arab Forum for Alternatives, 2016.

[12] Adib Naema. “The Patrimonial State and the Arab Spring [Arabic].” Beirut: Dar al-Farabi, 2014.

[13] Samir Amin. Op. Cit.

[14] Ibid.

[15] Ibid.

[16] Samir Amin. Facing the Crises of Our Time [Arabic]. Sina for Publication – Arab Diffusion Company, 1997.

[17] Ibid.

[18] Wael Gamal. “Foundations of Alternative Economy [Arabic].” Rosa Luxemburg Foundation and Arab Forum for Alternatives, 2017.