CONTRIBUTION OF THE IMF, WORLD BANK AND GATT

Contribution of the IMF, World Bank and GATT

Contribution of the IMF, World Bank and GATT

Introduction

Representing one major area of economic globalization, trade remains a controversial topic, as recent World Trade Organization (WTO) conferences and street demonstrations in Seattle and other cities have shown (Rosenau, 2007). The controversy surrounding trade stems from the fact that interest groups and the broader public view their welfare as being directly affected by trade policy. Although export-oriented companies and societal groups that profit from export exert pressure for global and regional liberalization agreements, domestically oriented firms and civil society groups oppose efforts to further liberalize trade and expand the authority of the WTO and regional trade agreements.

Mercantilism or economic nationalism was the dominating preindustrial economic policy and trade theory before the emergence of liberalism during the late 18th century. Between the 15th century and mid-18th century, mercantilism contributed significantly to the establishment of the modern state system through its emphasis on national power. Despite liberalism's relative dominance in the academic and public discussions, economic nationalism still remains influential today.

Similar to liberal economic theories, neomercantilism is an umbrella term for various strands of thought revolving around issues of trade and (state) power. Economic nationalists perceive trade as one among several instruments to increase a country's power position in the international system. While liberals see power and wealth as opposing goals, neomercantilists emphasize their complementary character. The equal consideration of power and wealth overcomes the economistic reductionism of most liberal trade concepts and helps to refocus attention on the central role of states in the global political economy (Ashley, 1983).

States can use the revenue generated by mercantilist trade policy to finance armies or influence enemies and allies. Protectionist trade strategies, mainly tariff and nontariff barriers, have been the preferred instruments to limit foreign imports and maximize the export of domestically produced goods. Because trade never is perfectly symmetrical—that is, not all countries can have a positive balance of trade—trade relations will ultimately be characterized by power struggles and conflicts between states (Heckscher, 1934).

For mercantilists such as Hamilton (1791/1966), international trade based on country-specific comparative advantages results in reduced economic self-sufficiency and national security. To promote the United States' economic development, he recommended an emphasis on industry over agriculture, economic self-sufficiency, government intervention, and protectionism. In his opinion, “Not only the wealth; but the independence and security of a Country, appear to be materially connected with the prosperity of manufactures” (Hamilton, p. 291). List (1916), a German representative of mercantilist trade theory, argued that “a nation which exchanges agricultural products for foreign manufactured goods is an individual with one arm, which is supported by a foreign arm” (p. 130). List pointed to the fact that even countries like Great Britain had switched to free trade strategies in the second half of the 19th century, only after they had achieved industrial and technological supremacy through protection of their infant industries. Once a country had caught up with more advanced nations through ...