Friday, October 25, 2013

Do international institutions promote or redress inequalities between the wealth of nations?

A little of both, really; but on the whole I think the trend is toward more international cooperation reducing inequality between countries rather than increasing it.


A great deal has been written about the impact of these institutions on global inequality, and I really can't do justice to it here. I've linked some sources that will hopefully get you started.

It's also important to be clear about what you mean by "inequality between countries"; the pattern has actually been that average incomes between countries are diverging and within most countries inequality is increasing, but while once you take into account different populations, overall incomes of human beings around the world are converging. I think the latter is the more important measure, so I would say that global inequality is declining. World hunger is now at the lowest level ever recorded, and still trending downward.

Some international institutions clearly reduce inequality and are almost entirely beneficial, such as UNICEF. Donations from people in First World countries to help children in Third World countries can only be a good thing, and definitely reduces global inequality.

There are also some international institutions which obviously increased international inequality, mostly multinational corporations, including some of the first such corporations such as the East India Company and the British East Africa Company. Colonialism and imperialism clearly involve international institutions of a sort, and they clearly increase inequality.

The more difficult question is whether modern international institutions that are ostensibly designed to promote economic development really do so, or are actually part of the problem: The big ones to ask about are the International Monetary Fund (IMF), the World Bank, and the World Trade Organization (WTO).

These institutions have effected a number of different economic reforms on various countries, mostly involving opening more markets to trade and weakening regulations. Some of those reforms have been successful, while others have seriously failed. In general, trade liberalization has been beneficial; reducing tariffs and promoting global trade is a major part of how countries such as Japan and Korea have seen extremely rapid economic growth and lifted themselves out of poverty. On the other hand, the effects of financial liberalization have been much more mixed, and probably overall harmful; capital rapidly moving in and out of small countries has caused a number of serious economic crises, and the overhang of foreign debt on most Third World countries is massive and still growing. Most economic theory says that opening up financial markets should be beneficial, but empirically that is not the result we usually see.

Along similar lines, international institutions often expand intellectual property rights for multinational corporations, which at least in my opinion is generally harmful; I can see no legitimate public interest in making medication more expensive in India just so that US drug companies can make higher profits. But international institutions also provide foreign development aid, which has allowed many poor countries to build infrastructure and provide education that would not have been possible otherwise.

Overall I would say that international institutions have been reducing inequality, but it very much depends on the particular institutions and what they do. Reducing tariffs on goods is usually beneficial, while weakening regulations on banking is usually harmful. Expanding intellectual property rights is often harmful, while providing development aid is generally helpful.

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