Prevention of the Economic Problems after the Great Depression and World War II - Literature review Example

Running Head: IMF, GATT and WORLD BANK Name Course Instructor Date In what ways were the IMF, World Bank, and GATT designed to prevent the economic problems that resulted in the Great Depression and World War II? In more contemporary times, there have been numerous criticisms directed at these institutions? What are these criticisms and are they justified? At the end of World War II, various international monetary institutions were created to manage the globe economy so as to prevent another Great Depression. These institutions include; World Bank which initially known as International Bank for Reconstruction and Development, International Monetary Fund (IMF) and General Agreement on Tariffs and Trade (GATT) which was later expanded into World Trade Organization (WTO). According to Bown (2009), it is quite evident that these institutions have not only persisted for over five decades, but they have also extended their mandates, changed their mission and also increased their membership. Further, these institutions have and are continually contested. This paper focuses on discussing the various ways that the IMF, World Bank and GATT were design to prevent economic problems that resulted to World War II and great depression. Further, the paper will discuss the numerous criticisms that have been directed to these organizations commenting whether they are justified. Bown (2009) institutions formed from 1815 to 1914 were designed to largely utilize technological innovation as well as promote commerce and economic regulation among the European states. For instance the International Telegraph Union was developed to benefit from the innovation of telegraph. Bown (2009), the financial organization such as Bank for International Settlement was formed to promote cooperation among. Additionally, financial organizations other than the BIS were largely concerned with increasing global standards for equipments, facilities as well as installations required to function the international economy (Irwin, 2005).  These organizations were not able to deal with main economic problems such as the great depression. As the economic problems increased, several global conferences were convened to discuss the way forward to deal with the global economic problems. Irwin (2005) maintains that, these conventions discussed the need to establish global bodies to promote more stable and open economic relations after the World War II and as a result GATT, IMF and World Bank were created. Henning (2010) maintain that, under the United States leadership, financial institutions were developed so as to develop a more liberal economic as well as prevent the reoccurrence of interwar problems. Henning (2010) maintain that, the IMF was mainly created to monitor a system of fixed exchange rates in which each currency had a formal exchange rate in relation to US dollar and gold. This was necessary to avoid the aggressive devaluation of currencies that was the main reason for the trade wars during interwar period. Henning (2010) maintain that, devaluation is the reduction in the formal rate at which a currency is exchanged for another. Nations with balance of payment deficits may largely devaluate their currencies as an effort to increase their export as compared to imports. Therefore, the IMF provided short term loans to assists nations deal with the provisional balance of payment deficits as well as sustains the fixed exchange rates of their currencies. . Irwin (2005) maintain that, in contrast to the short term loans provided by IMF, World Bank provide loans that were long term for reconstruction of postwar as well as avoid further economic problems. The GATT played an important role of lowering tariffs in multilateral trade negotiations. Further, in curbing the economic problems of both World War II and Great Depression, GATT developed procedures that would be sued to settle trade disputes. These procedures were aimed at doing away with the protectionists’ barriers of the interwar era (Henning, 2010).    Clearly, the global economic institutions were developed in response to lack of policy coordination during the great depression. . Irwin (2005) maintain that, the contribution of the World Bank, IMF to the international policy coherence has played a major role in enhancing global cooperation that has been viewed to constantly improve international welfare. Eichengreen and Douglas (2009) assert that, these financial institutions have contributed to the achievement of millennium development goals through development financing. Together, these institutions contribute to a coherence policy for development rebalancing the global economic system. Eichengreen and Douglas (2009) assert that World Bank has been involved in alleviating poverty while at the sometime encouraging transparency in governance. Additionally, the institutions have played a major role in creating a global environment that is highly conducive for sustainable economic growth (Eichengreen and Douglas, 2009). In more contemporary times, there have been numerous criticisms directed at these institutions. The financial institutions have been captured by the super powerful nations. According to Helleiner (2010), most critics maintain that these institutions were developed by and in the interest of the rich countries. Eichengreen and Douglas (2009) assert that European and America dominance in these institutions has been conserved by their sizeable market factor as well as their de facto control on their operations. It is evident that the fact that these institutions have been serving the interests of the rich nations, poor countries interests have been neglected and continue to be damaged. Eichengreen and Douglas (2009) assert that industrialized nations have a higher per capita income which translates into an economic influence in negotiating to shape international governance. As a result, these institutions have not assisted because they are largely oriented to promote interests of the industrialized nations. According to Helleiner (2010), World Bank have has highly been criticized of heavily using Sub-Saharan Africa through aid which have heavily been used to prop up governments that are authoritarian that continue with their failed policies. It is evident that amount of aid received by a nation and its growth rate is very questionable. According to Helleiner (2010), trade liberalization by IMF and WTO occurred at a quick pace without any concern for alternatives methods for developing nations to fund their budgets as well as develop social safety nets. The other criticism of these financial institutions is the fact that they have been captured by private investors and producers. Crockett (2009) asserts that there have been arguments that the IMF and World Bank have largely been dominated by the interests of private investors and producers. It is quite evident that the intuition of commercial as well as financial interests has hijacked the program of the institutions turning them to enforcers of open access to poor nation markets. Eichengreen and Douglas (2009) assert that an example is World Trade Organization promotion of various trade related aspect of Intellectual Properties rights with main focus on the pharmaceutical and drug industry, this has facilitated the setting of world trading rules that are often or occasionally harmful to developing nations. Therefore, international economic institution can be considered as tools for the private sector to impound policies in poor nations especially in the wake of globalization. Finally, the institutions have been criticized to have internal dysfunctions as well as experience accountability capability. Eichengreen and Douglas (2009) assert that these organizations have been criticized to have developed their own internal logics which mainly do not serve the interests of developing nations. Crockett  (2009) asserts that, decision by these institution are not made from a rational point of view but rather from a competitive bargaining power process over budget, turf and staff may benefit part of these organizations at the expense of the general goal. For instance, World Bank has been criticized to have a distinctive record of failures over years but it continues to show interests to evaluate the effectiveness of its projects (Crockett, 2009). In conclusion, it is evident that the global economic institutions have failed to live to the expectation of many nations especially the developing countries. Clearly, these institutions have left industrialized nations better off at the expense of developing nations. Therefore, for these institutions to effectively address the issues of global economy, the system of monitoring and evaluation should be asymmetric to both developing and developed nations. This will automatically result in establishment of a central function that will improve the efficiency of these institutions. Poverty alleviation need to be these institution centerpieces so as to ensure there is not great depression in the future. Further, there need to be an international economic architecture that is aimed at minimizing the ever increasing insecurity, unemployment, inequality, poverty and marginalization. References Bown,  P.  (2009).  “Protectionism  Increases  and  Spreads:    Global  Use  of  Trade Remedies  Rises   by  18.8%  in  First  Quarter  2009.”  Washington, D.  C.:    Brookings Crockett, A.  (2009). “Rebuilding the Financial Architecture.”  Finance and Development.    September:  18-­19 Eichengreen, B. (2003). “Governing Global Financial Markets:    International Responses to the Hedge Fund Problem.”  In Miles Kahler and David A.  Lake, Governance in a Global Economy.  Princeton:    Princeton University Press Helleiner, E. (2010).  “What Role for the New Kid in Town?  The Financial Stability Board and International Standards.”  Memo prepared for the workshop New Foundations for Global Governance.   Princeton University, January 8-­9 2010 Eichengreen, B & Douglas A. (2009).  “The Slide to Protectionism in the Great Depression:    Who Succumbed and Why?”  National Bureau of Economic Research Working Paper 15142.  July Henning, C. (2010).   “Economic Crises and Regional Institutions.”  In  Miles Kahler  and  Andrew  MacIntyre,  eds.,  Integrating  Regions:    Asia  in  Comparative Context. Unpublished manuscript. Irwin, A. (2005).  “Trade and Globalization.”  In Michael M.  Weinstein, editor.   Globalization:    What’s New? New York:  Columbia University Read More