To escape the imperial legacies of the IMF and World Bank, we need a radical new vision for global economic governance

Cooperation Without Domination

Jamie Martin in the Boston Review Class & Inequality: By the end of the twentieth century, a small number of international institutions had come to wield great influence over the domestic economic policies of many states around the world. The International Monetary Fund (IMF) and World Bank, in particular, made assistance to member states conditional on a broad suite of reforms, often with far-reaching political and social consequences. From Africa to Latin America to Asia, loans were tied to the balancing of government budgets, the privatization of state-owned industries, the removal of regulations, and the lowering of tariffs.

The IMF developed these powers during two decades of global turmoil spanning the Third World debt crisis of the 1980s–90s, the collapse of the Soviet Union, and the 1997–1998 Asian Financial Crisis. In the process, it faced a legitimacy crisis. Around the world the IMF was criticized for interfering in domestic politics and imposing neoliberal policies on states in the Global South and former communist bloc. In the 2000s, mindful of the institution’s poor reputation, some IMF officials claimed that its help now came with fewer strings attached. But when conditions were made more lenient, it was usually because the country in receipt of loans had already undertaken so many liberalizing reforms that it had few left to implement. And while some at the IMF increasingly insisted that the institution had abandoned its previously doctrinaire neoliberalism, it continued to make the same far-reaching demands for austerity when states turned to it for assistance—even during the height of the COVID-19 pandemic.

“The IMF and World Bank exert great influence over the domestic economic policies of states around the world.”

“The Bretton Woods institutions were less the defenders of sovereignty and democracy than the inheritors of old-style financial imperialism.”

From Sri Lanka to Pakistan to Ghana, many countries today are experiencing extreme debt distress, raising the prospect of another global wave of sovereign defaults.”

“We need an economic internationalism, grounded in social movements, to push for new institutions that advance ambitious goals.”

Today, while the IMF remains the only international financial institution with the resources necessary to deal with serious financial crises, it is usually only the most desperate states that turn to it. More are likely to do so in the coming months, as central banks, led by the U.S. Federal Reserve, hike interest rates, making the servicing of sovereign debt much more expensive. From Sri Lanka to Pakistan to Ghana, many countries today are experiencing extreme debt distress, raising the prospect of another global wave of sovereign defaults. After the last global debt crises of the 1980s and ’90s, when the IMF expanded its reach into the most intimate domestic policies of some of its member states, a widespread backlash emerged against what were seen to be its meddlesome powers. In order to avoid IMF bailouts, various states looked for alternative means of insuring themselves against financial instability, particularly by accumulating vast quantities of foreign exchange reserves. This was true not only for U.S. rivals like China and Russia but also for many emerging market and lower income developing countries, including South Korea and Brazil.

This strategy hasn’t been painless: it has diverted money away from public investment and poverty-reduction programs in low-income countries and channeled capital from the Global South to investments in the government debt of the Global North. But for some states, the alternative—agreeing to a conditional loan from an institution dominated by the U.S. Treasury—was even worse.

As the magnitude of twenty-first-century global challenges only grows, the ideal of international financial cooperation that does not involve these interventionist and unpopular demands on domestic policies seems no closer to realization than ever before. A stable, legitimate form of global economic governance for an unstable world economy has not yet been found.

What is to be done? The answer depends in part on how we tell the history of the crisis of global economic governance. One popular narrative sees it in terms of the rise of neoliberalism. On this view, the Bretton Woods institutions set up in 1944 during the heyday of mid-twentieth century Keynesian consensus—including the IMF and World Bank—were transformed into meddlers starting only in the 1970s. After Nixon unpegged the dollar from gold in 1971, the IMF and World Bank lost their original mandates, and the U.S. state used them to oversee a global market revolution. Before then, the story goes, these institutions had represented what political scientist John Ruggie called “the compromise of embedded liberalism” at the heart of the postwar economic order—a system that was both multilateral and revolutionary for allowing states greater autonomy to pursue expansive economic and welfare policies than had been possible before the 1930s, when the gold standard had severely constrained how they managed their national economies.

The upshot of this story is essentially nostalgic: if we abandon the latter-day neoliberalism, the argument goes, these institutions might function again as the legitimate vehicles of international cooperation they once were. The aim, in short, should be to recover a lost golden age of global economic governance.

But focusing on the postwar neoliberal turn, as consequential as it has been, obscures the flaws of even mid-twentieth-century liberal institutions—flaws that more clearly come into view when we extend our historical focus further back in time. The first international efforts to govern the world economy in fact emerged decades before World War II as nineteenth-century empires adapted to a world order transformed by World War I. Though it was indeed exacerbated by the neoliberal revolution, the emergence of an interventionist IMF is rooted in this longer-term process of imperial adaptation to new forms of mass politics and the rise of self-determination in the early twentieth century.

In other words, there was no stable era of mid-twentieth-century cooperation that can be easily recaptured today. Since international economic institutions first appeared in 1918, they have always been accused of being meddlers, and they have always been closely linked to the prerogatives of empires. Unlike international bodies tasked with preventing squabbling foreign ministries from declaring war, their work involved reaching deeply into contentious domestic issues. Even when limits were placed on their power, these institutions tended over time to become more interventionist, as their decisions reverberated across many levels of the political, social, and economic life of states and empires. Reckoning with this legacy is essential to building truly cooperative institutions for global economic governance today.

The crucial turning point in this larger story is not World War II but World War I. It was at this moment that international economic institutions—for the first time in history—began to intervene in the most consequential domestic economic decisions of some of their member states. In the process, these institutions oversaw a major transformation in sovereignty and international order, reshaping older tools of financial imperialism for a new era of self-determination. This era of international meddling in domestic economic policy-making has long been downplayed, in large part because the international institutions of the interwar period were considered failures. If measured against their goals of rescuing the world from depression and preventing the outbreak of war, no other conclusion can be reached. But historians have recently shown how the internationalist experiments of these years laid the foundation for the international order of the post-1945 period. Alongside developments in the international regulation of public health, migration, refugees, and the policing of contraband, efforts to govern global capitalism were inaugurated during the tumultuous years separating the world wars—not in the 1940s.

These first international economic institutions were designed to defend capitalism and stabilize a European-dominated international order that World War I had thrown into turmoil. Their powers were shaped according to the prerogatives of a few European governments and central banks—primarily those of the victorious Allied powers, though U.S. private interests and occasionally public authorities also played a role in their genesis. The most important such institution was the League of Nations, partly designed by U.S. President Woodrow Wilson, and founded in 1920, but which the United States never joined. The League’s forty-two founding members stretched from the British Empire and much of Europe to Argentina, Cuba, China, and Japan. It was joined by the world’s first international bank, the Bank for International Settlements, in 1930, and various intergovernmental bodies soon emerged to facilitate the production and exchange of raw materials and agricultural goods such as tin, rubber, and wheat. In the wake of these developments, international intervention became routine as global markets were embedded in new legal and institutional frameworks, underwritten by a handful of powerful states, empires, and banks.

These institutions pioneered interventionist powers similar to those of the modern-day IMF, World Bank, and other organizations. The first time an international institution made loans conditional on a government committing to a program of domestic austerity and central bank independence, for example, was in the early 1920s, when the League of Nations oversaw financial reconstruction schemes in former Ottoman and Habsburg lands, including Austria and Hungary. The bankers and officials involved in these schemes saw them as crucial to preventing financial chaos in unstable regions of Europe, the westward march of Bolshevism, and the outbreak of another war or major territorial changes that jeopardized the fragile postwar settlement. More here.

Editors’ Note: This essay is adapted with permission from the author’s new book The Meddlers: Sovereignty, Empire, and the Birth of Global Economic Governance, published by Harvard University Press.