Established after WWII, the World Bank’s mission is to finance capitalist development in so-called developing countries through infrastructure and creating conditions to attract foreign investment. The International Monetary Fund (IMF) was created to prevent another worldwide Great Depression by providing funds to prevent a chain reaction of unpaid loans that could make banks unwilling to lend, causing the economic system to spiral into depression.
Latin American governments faced a debt crisis in the late 1970s. It was sparked by the US Federal Reserve raising interest rates, making debts to US bankers increase rapidly, and governments were forced to rely on the IMF to make payments. Debt and the fear of losing access to credit became a basis for control over borrowing countries, as lenders demanded reforms in exchange for continued access to credit and debt restructuring. The debts were so large as to be impossible to repay, yet countries trying to develop required more credit to stay afloat.
The US used its control of the IMF and World Bank to force neoliberal austerity policies, including privatization of state programs and industries, cutting social services, reducing wages and eliminating the right to collective bargaining, and increasing openness to foreign investment to enter and be withdrawn at the whim of overseas markets. Reforms benefited North Atlantic bankers, at the expense of the welfare of the people and environment of the indebted countries.
The poorest who rely on social safety nets suffered the most. Infrastructure crumbled. Diseases spread as public health policies were cut. The Asian financial crisis of the 1990s is widely thought to be the result of these reforms. Latin American, East Asian and many African states rebelled and rejected World Bank and IMF loans, some defaulting on IMF loans. Soon after, many saw economic benefits and rapid growth.
Genuine Alternative or Same System, New Masters?
The BRICS countries (Brazil, Russia, India, China, and South Africa), a group of countries known for rapid GDP growth and quickly catching up to the advanced capitalist countries, recently established their own equivalents to the World Bank and IMF, called the New Development Bank (or BRICS Bank) and the Contingent Reserve Fund, respectively.
China is also spearheading the creation of the Asian Infrastructure Investment Bank (AIIB), a World Bank-like institution in which China will have controlling shares, but which includes among its founding members the UK, France, Germany, Australia, all of the BRICS, Israel, and dozens more. The US and Japan have opted out while the US unsuccessfully pressured its close allies like the UK to keep out as well.
The AIIB will make and coordinate loans for infrastructure projects like railways and gas pipelines between Asian countries, fiber optic cables, and electrical grids. China wants to build infrastructure, currently oriented around ports that ship to the US, to facilitate trade with its neighbors. This is in part a hedge in case exports to the US are threatened.
In his article, “China’s Bank and Waning USA Hegemony,” political economist Jack Rasmus argues that these new institutions will counter US power and create space beyond North Atlantic imperialism because they will offer developing countries the potential for financial independence from the US. Competition for projects among development banks like Japan- and US-controlled Asian Development Bank and China-dominated AIIB may result in borrowers receiving better terms for their loans and greater freedom. Furthermore, the AIIB will likely see projects in southeast and central Asia succeed more than previous lending because China stands to benefit from the development of its neighboring markets more than Japan or the US does.
Rasmus is not alone in seeing a threat to US dominance. In the Washington Post, former Treasury Secretary Larry Summers said the establishment of the AIIB “may be remembered as the moment the United States lost its role as the underwriter of the global economic system.” Rasmus suggests these challenges to Washington herald a new Grand Game, à la the European empires of the 19th century vying for control of the rest of the world, but this time between the US and China. Those resist ing imperialism are tempted to view the creation of these new financial institutions as a victory.
Facing Crisis
But US decline is often overestimated. As Leo Panitch and Sam Gindin observe in The Making of Global Capitalism, it is remarkable that in the wake of the 2008 global financial crisis, countries like China, India and Brazil welcomed US leadership and economic primacy in stabilizing global capitalism. The US position seems to have strengthened as the “emerging markets” like China are growing more slowly than they have in decades, while US growth is speeding up (with most growth going to the upper class). While the IMF will be adding the Chinese yuan to its reserve currency basket, a status reserved for the most stable currencies in the world (the dollar, the euro, the pound and the yen), the dollar is stronger than ever (currently exchangeable for 0.89 euros) and remains the reserve currency of choice around the world.
But given the almost total agreement among states around the world on how to respond to the economic crisis of 2008, it seems doubtful whether alternatives to the World Bank or IMF controlled by China or the other BRICS would implement substantially different policies than those lenders. Since 2011, the European Commission, European Central Bank, and IMF have imposed austerity on advanced capitalist states like Greece no less harsh than the structural adjustments imposed on Latin America in the 1980s. In any case, China and the other BRICS are certainly not challenging the overarching development model promoted by the World Bank. With the usual suspects like the UK, France and Germany joining for a piece of AIIB projects and a share in decision making, the prospect of this bank posing a threat to North Atlantic interests seems unlikely.
AIIB investment in Asia represents the intensification of global capitalism, with once peripheral states like Kyrgyzstan becoming further woven into global commerce. Additionally, the BRICS Bank and AIIB are small compared to the World Bank, which is in turn dwarfed by the massive national development banks of countries like China and Brazil. It’s easy to overstate the impact of the BRICS Bank and AIIB will have in the foreseeable future.
Integrated Global Capitalism
The idea of a world where the US and Chinese empires rival each other in a Grand Game is popular, but doesn’t bear scrutiny. The US and Chinese economies are so codependent now that either economy risks devastation should the other falter. Military tensions have been easing for decades.
With harsh austerity policies once imposed on poor and middle-income countries being forced on the people of the US and Europe, Panitch and Gindin argue that conflicts within states, between classes, are increasing as conflicts between states are decreasing. As residents of the sole superpower, struggle within the US may be the greatest hope for a more free and democratic world.
