Rewriting the Rules of the Global Economy

To start understanding what’s wrong with the international financial institutions (IFIs), we need to look at why we actually need economies to function. The most important economic issues to most people are whether they are able to get decent jobs and whether they are able to lift themselves out of poverty.

In writing the rules for economies, the International Monetary Fund (IMF) and WTO (World Trade Organization) are major proponents of neoliberal ideology. That ideology is based on the theory that slashing government spending, reducing tariffs, privatizing public resources, and promoting corporate investment will result in higher economic growth, and that this will eventually result in a reduction in poverty because a rising tide lifts all boats. This contrasts with more progressive viewpoints that focus on reducing inequality by investing in health care, education, and opportunities for the poor.

The mandate of the IMF is to help countries overcome short-term financial difficulties by giving out loans. However, these loans are only provided if countries restructure their economies. That is, they have to adhere to these neoliberal economic policies, like cutting government spending in areas such as education and health care, to regain what is called “fiscal discipline,” which means not spending more money than you are taking in. The problem is that the result in many countries has actually been a reduction of growth and development – stagnant wages, more unemployment. Thus, while the creditors are bailed out by the IMF, often the borrowing country is unable to repay the loan, resulting in an endless cycle of impoverishment and indebtedness. Read more…

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