International Relations the International System

International Relations

The International System and Global Integration

Relations between states and their institutions lie at the heart of the dilemma of global integration. Whether represented by individual governments, private corporations, supranational bodies, or international non-governmental organizations (NGO's), these bodies profoundly affect the way the peoples and polities of the world interact politically and economically. Supranational organizations, such as the International Monetary Fund and the World Bank, endeavor to manage the global economy by controlling the movements of funds between nations, governing relative values of world currencies, and providing financial aid to developing and "transitional" economies. Playing their part, too, the private multinational corporations and NGO's possess often selfish agendas that can powerfully influence the actions of the multi-state organizations and the distinct nations they purport to represent. Ever since the Second World War, and especially since the end of Bretton Woods in 1971, the United States dollar has played a central role in the international financial system. The development of rival economic powers, such as Germany and Japan, and now the European Union, the People's Republic of China, and India, has marked a trend toward an increasingly wide distribution of real wealth, and an overall globalization of the entire system. Globalism presents its own challenges, ones that are both helped and hindered by current international arrangements.

The International Monetary Fund and World Bank are major players on the world economic scene. Founded at the end of the Second World War in Bretton Woods, New Hampshire, the International Monetary Fund, or IMF, is a multinational organization that attempts to manage the global financial system through regulation of exchange rates, international trade and exchange payments, and so forth. Originally basing currency exchange on a gold standard, this was effectively dropped by the United States in 1971, in a decision by President Richard Nixon that allowed currencies to float against one another in the market. Since that time, the IMF has concentrated primarily on trying to assist what it terms Lesser Developed Countries (LDC's) and Countries in Transition (CIT's) by lending them money to either stabilize their currency or offset their national debt.

While acting aggressively to stave off catastrophe in the Asian and Russian financial crises of the 1990s, as well as in Argentina, the IMF's role has not always been welcomed. Many believe the IMF is grossly prejudiced toward the interests and policies of but a handful of its members. The organization's governing board is a case in point - the United States, which controls just five percent of the world's wealth, exercises fully seventeen percent of the vote, while Europe accounts for forty percent of the total vote, and China and India together only five percent.

Under such arrangements, the IMF veers dangerously close to becoming an organ of various large Western corporations, most of which support a blindly globalist agenda. As witnessed by current circumstances, international monetary policy that favors the employment of the United States dollar as the world's reserve currency helps to finance the continued enormous United States trade and budget deficits. It also contributes to the continually skyrocketing American national debt. American exports benefit by being comparatively cheaper to foreign consumers, while the United States attracts foreign investment because of the proportionately lower cost of real property and financial assets purchased in dollars. The whole arrangement appears in direct contravention of IMF and World Bank aims of stimulating development in the Third World and helping out faltering economies. The American economy may indeed be faltering, but it is certainly large and well-established, many of its inherent flaws relating to the greed of multinational corporations and government shortsightedness in using foreign debt to finance government expenditure.

Nonetheless, apparent bias can work both ways. The World Bank has been criticized, as well, for continuing to lend to countries such as China that do not require special assistance in order to raise funds for economic expansion. In the view of Bulow and Rogoff, "callable" capital raised by rich nations carries with it a "free insurance," that is unnecessary for nations with strong credit ratings.

Commercial loans to China, and similar economic powerhouses, only amount to unfair subsidies. Nations play the international finance game, manipulating the institutions that govern the world economy for their own benefit, and that of the corporations that operation within their borders. The problem of China has been particularly acute given the confluence of public and private as represented by its communistic system, and by the People's Republic's willingness to use the floating dollar to its own considerable economic advantage. By having pegged, or near-pegged its currency to the American dollar for so long, China has benefited by seeing its vast numbers of exports to the United States remain eminently affordable despite the dollar's steep slide. The Asian nation remains a magnet for Western companies eager to find cheap sources of manufactured goods and, as with India, a prime location for the outsourcing that many allege is robbing developed economies of even high-skilled jobs. India is particularly noted for its cultivation of high-tech industries and associated outsourcing. The resultant job drain was not the intended consequence of a monetary financial policy that was supposed to make all nations "equal." Nandan Nilekani, an Indian entrepreneur in the booming technological haven of Bangalore, attributes his nation's ability to compete on a global level directly to the American dot.com boom of the 1990s, and the enormous capital sums it raised. It was these very funds that made computers affordable and widespread in places like Bangalore, thus making possible India's conquest of old barriers of time and distance.