Behind Closed Doors

1 Introduction

What is globalization? Or who is globalization? Is it prudent to make a bargain at ones local H&M branch when buying a shirt as cheap as box of chocolates or does this ostensibly casual snip make oneself guilty of supporting a modern form of slavery taking place somewhere in the developing world? The term globalization creates many questions and provides little answers. For a great majority of the world population globalization in all its complexity and impenetrability is nothing more than a modern myth, a phenomenon that is at the same time inevitable and unchangeable in its nature because it does not necessarily require democratic vote. Its design promotes the assumption that there is nothing anyone can do to change the current globalization process or to intervene in the implementation of economic policies created by the leading international financial institutions. To accept this inevitability like many governments, academics and mass media do means that no resistance is possible. And indeed a growing passivity towards this new form of global governance has emerged, its result being a ‘demonized’ globalization that occurs to only some extent politically restricted, and, surprisingly, without major civil interference. Nevertheless, taking a closer look at the forming and structure of the globalization process allows a clearer understanding of its agents, its forms of delivery and its financial and social consequences for the developed as well as the undeveloped nations. Moreover, a detailed analysis and evaluation of dominant structures and dynamics connected to globalization might strengthen the desire for alternatives to the current global economic policies and, furthermore, stress the obligation of the responsible to make a change.

Especially the fact that everyone, be it in the developed or the undeveloped nations, must live with the impact globalization has on today’s world, turned it into a political issue. But is globalization really something anyone has asked for or has it been imposed upon societies undemocratically? And is there a controlling instance or is it simply a Selbstläufer? Joseph Stiglitz, former chief economist at the World Bank and a strong voice against undemocratic practices of major Western financial institutions, defines globalization as “the closer integration of the countries and peoples of the world which has been brought about by the enormous reduction of costs of transportation and communication, and the breaking down of artificial barriers to the flow of goods, services, capital, knowledge, and (to a lesser extend) people across borders” (Stiglitz, 2002: 9). Yet his definition only serves as a starting point for the exploration of the most influential phenomenon of our time. The question is to what extent globalization does challenge democratic principles? Evidently, it seems that the leaders of globalization have tied themselves to one measurement only by which they judge failures or successes, and that is profit. Even though economic globalization - sometimes also referred to as corporate globalization or neoliberalism - is certainly not a new phenomenon, it has been accelerated enormously in the past decades due to advanced technological progress in various fields. And so this discourse will focus on the thesis that economic globalization is a phenomenon deliberately used by the leading Western financial institutions to gain full control over the world markets. Hence it is delivered by free trade agreements, transnational corporations and the erosion of national sovereignty resulting in growing inequity and poverty especially for the developing world.

2 The Creation of Modern Economic Globalization

The end of World War II marked an important turning point in world affairs. While many of the industrialized societies were destroyed, the United States had experienced an economic boom during the war and was now keen on using its influence to construct a new world order based on three fundamental building blocks: the United Nations Charta to establish an international political order, the Universal Declaration of Human Rights, an international set of norms for the behavior of governments towards their nations and the Bretton Woods System to establish an international economic order. Essentially, the founders of Bretton Woods intended to create an international liberal order and to regulate capital. According to Henry Morgenthau, then US Treasury Secretary and president of the conference, its “purpose was 'the creation of a dynamic world economy,' to sustain the domestic American economy's continuous expansion by ensuring it sufficient access to foreign markets and raw materials” (Ecologist, 2000). Moreover, this new centralized global economic system was said to prevent future wars, reduce poverty and help the world rebuild. Yet in its design it clearly was an attempt by the industrial nations to preserve their status quo in the world economy and to give primacy to economic - meaning corporate - values. But which role would the undeveloped countries play in this new scheme? The idea that the global corporations, financial institutions and global bureaucracy would serve as central instruments to ensure future global stability has caused “the most fundamental redesign of the world’s economic, political and social systems since the Industrial Revolution” (The International Forum on Globalization, 2002: 18). This assumption raises the question of who really benefits from economic globalization. Is it the rich industrial nations and their global corporations only who the new policies were designed for or are there any advantages for the developing world as well? And if so, are the undeveloped nations even capable of using these opportunities?

3 Agents of Globalization

The Conference of Bretton Woods 1944 established two major economic institutions: the International Monetary Fund (IMF) and the World Bank, its formal name being the International Bank for Reconstruction and Development (IBRD). The IMF, on the one hand, is by its design concerned with macroeconomics, dealing with a government’s budget deficits, its monetary policies, its inflation, its trade deficits and its borrowing from abroad. The World Bank, on the other hand, was set up to take care of structural issues like a country’s financial institutions, its labor market or its trade policies (Stiglitz, 2006: 14). Moreover, there were plans to establish an International Trade Organization (ITO) to oversee expansion of global trade through tariff reduction (Dowlah, 2004: 139). Still this proposal was rejected by the US for fear of an infringement of national sovereignty and excessive regulation. However, what emerged instead was the General Agreement on Trade and Tariffs (GATT), signed in 1947 by 23 countries. Its objective was a higher living standard world-wide “by ensuring full utilization of global resources, increasing volume of real income and effective demand next to an expanding production and a global exchange of goods and services” (Dowlah, 2004: 30). The founding of GATT would lay the grounds for the establishment of the World Trade Organization in 1995. However, the role of the WTO will be discussed in Chapter 5 along with free trade agreements. How exactly did these new institutions function? The rules of the IMF, contained in the Articles of Agreement signed by all members, constitute a code of conduct. The code is simple: it requires members to allow their currency to be exchanged for foreign currencies freely and without restriction, to keep the IMF informed of changes they contemplate in financial and monetary policies that will affect fellow members' economies, and, to the extent possible, to modify these policies on the advice of the IMF to accommodate the needs of the entire membership. The World Bank, its sister institution, had originally been created to finance the reconstruction of the war-ravaged economies of Western Europe, whereas today it has one central purpose: to promote economic and social progress in developing countries by helping to raise productivity and life standards. Looking at the institutions' aims and objectives, they do sound promising in the way they were set up in 1944.

Yet how did they become so controversial and why is there such an enormous amount of critique when it comes to their policies and strategies against poverty? For a start the World Bank and the IMF have come to play a dominant role in the world economy. Stiglitz (2006: 14) argues that “the ideas and intentions behind the creation of the international economic institutions were good ones, yet they gradually evolved over the years to become something very different”.

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