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Article Excerpt
The UN Financing for Development conference (FfD) was held in Monterrey, Mexico, in March 2002 to gain international financial and political support for the Millennium Development Goals. Various multilevel consultations were held with "equal stakeholders" ranging from the IMF and WTO to civil society organizations in order to forge a consensus-based framework for substantially reducing world poverty. However, despite the FfD's seemingly novel attempts at inclusionary and multilateral forms of negotiation, this article suggests that the Monterrey consensus is, in the first instance, concerned with reproducing and thus legitimating the growing power of transnational capital. The consensus is not so much about reducing poverty as it is about managing the ever-increasing polarization of capitalist social relations in the South. KEYWORDS: Monterrey consensus; Millennium Development Goals; development finance; IFIs; poverty
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Global economic governance is said to be about "steering or control mechanisms" initiated at multiple spaces of political organization with no single center of global economic governance. (1) Echoing this position, the Commission on Global Governance has promoted the following definition: "[T]he sum of many ways individuals and institutions, public and private, manage their common affairs. It is the continuing process through which conflicting or diverse interests may be accommodated and cooperative action may be taken. It includes formal institutions ... as well as informal arrangements that people and institutions have either agreed to or perceived to be in their interests." (2) While laudable in spirit, these definitions of global governance fail to acknowledge the existence of inherent contradictions and class-based power relations that define the global capitalist system. What happens to this mainstream understanding of global governance once we view it through a lens of the global capitalist system?
The main objective of this article is to address that question by critically examining what global economic governance actually means in practice. To this end, the discussion focuses on the Monterrey consensus of 2002.
On September 8, 2000, heads of state committed themselves to reducing poverty in the world by 2015. To meet this objective of the Millennium Declaration, the UN secretary-general, Kofi Annan, called for a Financing for Development (FfD) conference to take place in Monterrey, Mexico, in March 2002. (3) Following the spirit of global economic governance, the FfD sought to forge new alliances between states, business, and global civil society in order to achieve more equitable economic and financial governance in the world economy. For Annan, new partnerships cannot be reached without the inclusion and participation of all relevant "stakeholders," most notably the World Bank, the International Monetary Fund (IMF), and the World Trade Organization (WTO). While this move was indeed one of the most innovative features of the FfD, it also served as a wellspring from which much suspicion over its underlying motives was drawn. One observer has gone so far as to state that
[the United Nations] is weak and compromised and is now signing off on a political document which delivers nothing on debt, nothing on redistribution and reparations, nothing on the regulation of markets and corporations and nothing for the global South. (4)
According to the Bretton Woods Project, approximately seven hundred civil-society organizations (CSOs) at the "Foro Global" held prior to the FfD conference denounced the official report since "it failed to offer new mechanisms to mobilise new financial resources to achieve the Millennium Development goals." (5) Indeed, the general consensus of the CSOs has suggested that the Monterrey document is nothing more than an attempt to repackage the long-dominant, US-backed Washington Consensus, which is marked by a set of neoliberal policies that have encouraged the dependence of developing nations on foreign investment, export-led growth, privatization, and government reduction in social expenditure. (6)
The paradox that emerges here is as follows: the continued application of trade and financial liberalization by governments of developing nations, which comprises the backbone of policy recommendations in the Monterrey report, are not only highly problematic in the current era of increasing instances of protectionism in the North and growing financial volatility, but also, and relatedly, widely seen as contributing to, rather than alleviating, poverty, human degradation, and political turmoil in the South.
In what follows, it will become clearer that the primary reason for recreating the neoliberal doctrine within the Monterrey consensus is based in the shifting architecture of aid to the South. Despite all the media attention given to the new commitments by richer states to spend more on development assistance, especially in the context of the G-8 Summit in Kananaskis, Canada, in 2002, foreign aid has become privatized over the past two decades due to general capitalist restructuring strategies. The latter were assisted through the market-led growth strategies pursued by the IMF and World Bank. As such, official government aid has lagged far behind private capital investment in developing countries. The worrying trend is that there appears to be a reduced flow of private capital from richer to poorer countries, especially after the recent spate of financial debacles in the South and the current global recession. (7)
Before proceeding, it is important to flag what is meant here regarding the "global South." Particularly significant in terms of foreign-capital investment flows, we must duly note the heterogeneity of the South. For Jeffrey Garten, the former US under secretary of commerce for international trade, there are ten "big emerging markets" (8) (China, India, Indonesia, Brazil, Mexico, Turkey, South Korea, South Africa, Poland, and Argentina), which "alone contain nearly one-half of the world's population, have the most rapidly growing economies in the world, and have governments currently committed to trade-led growth and cooperation with the United States." (9) There is another South, however. Following Samir Amin, this term embraces two categories: excluded and marginalized states--both of which include the so-called Highly Indebted Poor Countries (HIPCs). (10)
As I have argued elsewhere, most of the big emerging markets have been recently incorporated into the rules and regulations of the G-20, which falls under the ambit of the new international financial architecture (NIFA), involving the IMF, World Bank, the G-7, the Bank for International Settlements, and the European Union. (11) It is interesting to note that the remaining countries of the South have not been included in this surveillance and disciplinary scheme aimed at ensuring that both public and private sectors adhere to "proper" neoliberal management under the current reign of free capital movements.
Like the NIFA, the content of the Monterrey consensus reinforces and legitimizes the coercive power of transnational capital, most notably an ability to exercise capital flight or investment strikes if domestic conditions are not favorable, such as capital controls, too many regulatory policies, undisciplined and costly labor markets (read: unionized), political instability, high environmental standards, and so forth. (12) Thus, from the perspective of capitals, the G-7, and US-led international financial institutions (IFIs), the only solution to the current problem of declining aid to the ("other") South is to ensure that developing countries continue to adopt sound neoliberal policy, which implies that they open up their markets even further to the exigencies of transnational capital.
From this perspective, I argue that the Monterrey consensus serves to further legitimate an emerging official development discourse, most notably the Second Generation Reforms (SGRs) of the IFIs, which, in similar vein to global governance, attempt to recast neoliberalism in terms of common values and goals through emphasis on inclusion, partnership, and poverty reduction. Specifically, the Monterrey consensus is, in the first instance, concerned with reproducing and thus legitimating the growing power of transnational capital. Thus, it is not so much about reducing poverty as it is about managing the ever-increasing polarization of capitalist social relations of capitalist in the South. In this sense, the Monterrey document not only depoliticizes the coercive power of transnational capitals by portraying their role as equal partners with civil society and states of the South but also represents their growing role in the development agenda as some sort of natural occurrence.
In what follows, I not only demonstrate continuity between the SGRs and the Monterrey consensus but also flush out certain issues of that the latter avoids, such as the attempt to legitimate the increasing power of transnational capital in nation-states, and the growing unilateralism of the United States evident in the debates about performance-based grants and sovereign bankruptcy procedures. The latter are examined in the third part of the article. Before shifting our analysis to the key solutions proposed by the Monterrey report, it is helpful to begin by grasping the meaning and context from which its precursor, the Washington Consensus (WC), emerged.
The Washington Consensus and the Crisis of Capitalism
In the fall of 1971, the Bretton Woods system ushered in a new policy and ideological orientation in the United States known as neoliberalism, which is premised on steadfast belief that political and social problems should be solved primarily through market-based mechanisms as opposed to state intervention. Neoliberalism quickly became the dominant policy of the international financial institutions such as the IMF and World Bank, congealing into what many authors have referred to as the Washington Consensus.
Although the term Washington Consensus conjures up images of conspiracy among US policymakers and Western capital vis-a-vis the global South via the medium of the IFIs, this intellectual doctrine should be understood more as a general resolve by political elites and bourgeoisie in the United States that market-led reform in the developing world would be beneficial in addressing the declining economic strength of the United States during this period. On the other hand, the implementation of market-led strategies aimed at export-promotion industrialization clearly served the interests of the indigenous bourgeoisie, too. Take, for instance, the growing polarization of Latin American societies marked, at one extreme, by growing numbers of working poor and, at the other, a new class of superrich Latin American billionaires who benefited from the buyout of public enterprises. (13) Notwithstanding this observation, the US bourgeoisie, particularly large manufacturing and financial fractions, as well as consumers throughout the industrialized world, were the greatest beneficiaries of the imposition of market-led reforms throughout the South.
In response to the waning levels of US hegemony, the US government was able to conceal its unilateral policies through the seemingly multilateral nature of the IFIs. This was particularly important in an era of a floating-exchange-rate regime, where the US government had relatively less control over trade and financial policy formation in the South than it did during the pegged-exchange-rate system that marked the Bretton Woods era. Key policy instruments of the consensus were at the heart of the structural adjustment programs (SAPs) administered by the IFIs, which, despite the immense diversity among developing countries, were largely homogenous in nature. As Joseph Stiglitz, former senior vice president and chief economist of the World Bank, notes, the success of the consensus rests on its simplicity:
Its policy recommendations could be administered by economists using little more than simple accounting frameworks. A few economic indicators--inflation, money supply growth, interest rates, as well as budget and trade deficits--could serve as the basis for a set of policy recommendations. Indeed, in some cases economists would fly into a country, look at and attempt to verify these data, and make macroeconomic recommendations for policy reforms all in the space of a couple of weeks. (14)
Through their insistence that debtor nations adopt export-led industrialization strategies (including a faster rate of production increase), minimizing any restrictions on the activities of private-market participants, alongside tight fiscal discipline (draconian slash-and-burn policies vis-a-vis social spending), the SAPs helped bring about huge and continual resources transfers from the debtor countries to the developed world. The emphasis on privatization and deregulation also attracted foreign capital investment to the developing countries. According to a report by the Joint Economic Committee of the US Congress, in the mid-1980s, while bank profits grew steadily during the debt crisis, the developing countries exposed to the SAPs moved further into debt. (15) As we will see below, the SAPs also assisted in creating a greater, not lesser, dependency of Third World governments on global capital markets as opposed to bilateral aid, not to mention higher poverty rates than before the debt crises of the early 1980s.
Having established the capitalist nature of the WC, three caveats need to be raised at this point since they help illuminate the context from which the Monterrey consensus surfaced. First, and in contrast to the United Nation's understanding of the IFIs as "equal partners," these multilateral institutions are not neutral and independent public authorities acting above states; rather, they act as public authorities for transmitting the policy of the states. (16) Voting power within the IMF, for instance, is heavily skewed in favor of its largest shareholder, the United States. With its 17 percent voting share, the US government can easily veto any changes to the IMF Charter that it perceives as going against national interests. The G-7 countries, excluding the United States, have a combined voting power of 42.5 percent, compared with the meager 39 percent of all developing countries. Moreover, since the US donates more than 50 percent of the World Bank standby capital, it wields hegemonic influence within this institution, usually at the expense of those countries that cannot afford to contribute these amounts. Additionally since the entirety of World Bank loans is taken from the private financial markets at preferential rates, the World Bank is dependent on the United States, the G-7 countries, and the international financial markets for the bulk of its working capital.
Seen from this angle, it should not come as a surprise that during a second preparatory conference to the FfD in February 2001, "the US representative to the UN insisted that the mandates of the WTO, the IMF, and the World Bank 'should be respected.'" The United States, he said, was "concerned that the development financing process might be used as a vehicle for the United Nations to interfere in their governance and decision-making mechanisms." Any such attempt, he warned, would be opposed by the United States. (17) This expression of US unilateralism will become more evident below when I discuss performance-based grants and the management of sovereign debt.
Second, the WC, like its Monterrey counterpart, is not solely political in nature but rather has its roots in the changing nature of the world economy. Put differently, although powerful leaders and policymakers in Washington created neoliberal policies that eventually formed the Washington Consensus, this process did not occur in a vacuum; it came about as a reaction to the economic and political manifestations of what Marxists refer to as the crisis of overproduction. (18) This crisis is predominately characterized by shorter boom/bust cycles and growing debt burdens in both private and public sectors across national spaces.
According to these authors, one of the main causes of the "slowdown is that the rate of investment tends to exceed the growth of final demand." To illustrate, the manufacturing sector in China, which is one of the hot growth centers of the global economy, is operating at approximately 40 percent...
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