1

Value Addition
NOTES
Political Science and International Relations

Evolution of International Economic System

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Evolution of International Economic System

Capitalism and Globalization

• Globalization is understood as the defining issue of our times. The impact of the process of
globalization is so vast that it seems to be a natural inevitable fact of human evolution.
• The advocates of globalization like Margaret Thatcher gave the concept of TINA (There Is No
Alternative). It means there is only one alternative to globalization and that is, there is no alternative.
• Advocates of globalization projected it as a process that can resolve human problems. Globalization
can bring wealth and happiness. At the same time, we see that globalization has become one of the
most debatable arenas of academic debate.
• There are schools of thought which believe that globalization does not result in both growth and equity.
Growth has been given priority over equity.
• Globalization did increase the rate of economic growth of many countries but at the same time, there
are countries in Africa and Asia that have witnessed negative economic growth.
• Those countries which witnessed rapid economic growth, it was seen that there was an increasing
divide between rich and poor sections of society. This was not limited to 3rd world countries only but
this phenomenon was also seen in the developed world. In both developed as well as the developing
world we see protests against globalization.
• Globalization increased both inter-state as well as intra-state disparities. Opposition to globalization
emerged in various forms. We see the rise of new social movements and worldwide resistance to the
process of globalization.
• Globalization is a complex phenomenon. It has its ideological, cultural, political, and economic
dimensions. Globalization was also resisted on ideological and cultural grounds.
• Globalization and its nature have caused academic debates among political scholars.
• There are the following schools of thought regarding globalization:
o Neo-Liberal School of Thought
o Structuralist School
o Neo-Structuralist School
o Global Social Democracy

1. Neo-Liberal school of thought

• This school is the central school that advocates the present type of globalization. This school is
based on the philosophy of Adam Smith and Ricardo. This school believes that liberalization of
trade and market will result in the growth of prosperity.
• It believes that the Structural Adjustment Programme ensures accountability in administration.
• Ultimately people get better goods and services and also they do not have to wait.
• IMF and World Bank became the main instrumentalities in implementing Neo-liberal-led
globalization.

2. Structuralist School
• They are traditional Marxists. They believe in the tradition of theories of Underdevelopment.
• School of underdevelopment emerged in the context of the initial phases of BrettonWood-led
development strategy for the advancement of newly independent countries.
• Scholars like A.G. Frank suggested that as a result of such a process of development,
underdevelopment is happening. The problem lies in the very structure of capitalism.
• In Contemporary times, such radicals as Amartya Sen and Joseph Stiglitz talk about more
humanized globalization. The structuralist suggests a more localized type of national economy.
• We can cite the example of the Marxist response to globalization in the form of radical initiatives
 2

of Bolivia, which has nationalized energy resources.

3. Neo-Structuralist School
• Countries like Brazil represent this approach. They believe that globalization can be embraced.
• They want to make globalization more acceptable. They call their approach a high road to
globalization in comparison to the Low road of globalization of neo-liberals.
• They suggest that we should adopt policies that can alleviate income disparities and upgrade the
capacity of the poor.
• Countries like Brazil feel that we can meaningfully integrate ourselves with the globalization
process.
• The orthodox Marxists called them and their reforms a heterodox paradox.
• Brazil may have reduced the ranks of the poor but massive poverty, inequality, and stagnation are
still the feature of Latin America's largest economy.

4. Global Social Democracy

• The prominent scholars are Jeffery Sachs, David Held, Joseph Stiglitz, Amartya Sen, etc.
• This school acknowledges that the contemporary process of globalization has given priority to
growth over equity.
• They believe that the world requires enlightened globalization.
• Globalization is based on the ethics of democracy, human rights, sustainable development, etc.
• They want market integration to be accompanied by social integration.
• They demand fundamental changes in the institutions and rules of global governance.
• Stiglitz suggested that developed countries should outrightly open their markets to poorer
countries without reciprocity and conditionalities.
• Their approach is known as the Washington Consensus Plus approach.
• India also believes in this school of thought. Jeffrey Sachs thinks that anti-globalization movements
are allies of globalization.
• They help in exposing the shortcomings of globalization and ways to end the contradictions of
globalization.
• Contrary to the neo-liberal thought, the social democrats believe that we should not assume
globalization is transcendental or inevitable if reforms do not happen.
• There is a possibility that the entire process may see a Reversal.
• Thus, globalization is interpreted in many ways. Within international politics, we see liberal
scholars believing in globalization whereas Realist and Marxist scholars believe that it is not of
much significance and they feel that the world is no more integrated than before.
• Thus globalization in its contemporary form is primarily seen as a capitalist phenomenon. The
majority of third-world countries view it as a US-led enterprise.

Meaning of Globalization
• Globalization is defined through various models, e.g.
o Global village model of McLuhan,
o Cobweb model of John Burton,
o Global Civil Society Model of Richard Falk
• It is said that globalization is being realized on various local, regional, national, and global levels.
 3

As such, the phenomena of globalization are being defined in the following ways:-
• Anthony Giddens defines globalization as the Compression of time and space.
• Joseph Stiglitz defines globalization as closer economic integration and breakdown of artificial
barriers to the flow of goods, services, capital, knowledge, people, etc.

Globalisation is being defined through various concepts by various scholars through different
perspectives, which are as follows:
• Marshall McLuhan talked about the global village, wherein he says that today distance and
territory do not matter.
• Thomas L. Friedman, in his book ‘The World is Flat’, says that today technology has flattened
the world.
• Anthony Giddens defines globalization as the compression of time and space dimension.
• Today nation-states have got intertwined with each other because of the flow of capital,
technology, and expertise.
• Today multinational corporations have started playing an all-important role at the global level.
• They have become so important that their presence cannot be ignored.
• According to Noam Chomsky, market, state, and technology have got integrated with each
other’s businesses, societies, and cultures to a level never seen before.
• This integration has impacted nation-states.

Globalisation as a contested concept

Globalisation is a contested concept because various schools of thought look at globalisation in
different manners.

Neo-liberal model
• Neo-liberal model is based on the following-
• Giving central position to market economy,
• It is based on the creation of competitive environment on the basis of law of demand and supply,
• It focusses on economic growth and prosperity,
• It is of the view that economic growth and prosperity is the panacea of all ills.

Marxist Model
• They are of the view that globalisation is heavily skewed in favour of rich countries,
• Globalisation creates inequality not only among nation states but also within societies,
• Globalisation creates condition for exploitation of poor by rich,

Views of Social Liberals

• Social Liberals like Amartya Sen and Joseph Stiglitz who talked about increasing inequality because
of the adverse effects of globalisation. They have talked about democratic deficit existing in various
countries because of the way globalisation has happened in various countries.
• Today democratic institutions in various countries are not able to perform their envisaged functions.
Amartya Sen has talked about greater engagement of civil society in the decision-making process.
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Is globalization just capitalist universalization?

• Globalization is often interpreted as the universalisation of capitalist modernity, marked by the
global spread of economic, political, and cultural practices rooted in Western capitalist
frameworks. Capitalist modernity, originating from the industrial revolution and the liberal
economic order, emphasizes free markets, privatization, technological advancement, and
consumerism. Globalization facilitates the worldwide diffusion of these elements through trade
liberalization, financial flows, and multinational corporations, leading to homogenized
economic systems based on capitalist principles.
• According to David Harvey’s theory of "time-space compression," globalization accelerates
capitalist expansion, integrating local economies into global networks. Immanuel Wallerstein’s
World-Systems Theory also views globalization as an extension of capitalist hegemony, where
the core exploits the periphery through economic dependency. Even cultural dimensions, as
argued by Benjamin Barber’s "McWorld," highlight the spread of consumerist values aligned
with capitalism.
• However, globalization is not purely capitalist; it is also shaped by resistance and alternative
modernities. Concepts like "glocalization" (Robertson) and the rise of socialist market
economies (e.g., China) show localized adaptations of capitalist norms. Moreover, global
governance institutions attempt to balance market-driven globalization with social justice and
environmental concerns.
• Thus, globalization predominantly universalizes capitalist modernity but is neither uniform nor
uncontested, as diverse political-economic systems co-exist within its framework.

Critiques of Globalisation
(a) Amartya Sen
• Amartya Sen is of the view that globalisation has brought greater inequality in those countries which
have embraced globalisation. In fact, these countries have also witnessed greater social conflicts. But
it doesn't mean that those countries that have not accepted globalisation have done better. In fact, those
countries have also witnessed problems. Moreover, benefits of globalisation have not percolated to the
bottom rung of society.

(b) Immanuel Wallerstein

• According to him, the present model of globalisation is no less exploitative than colonialism. In fact,
rich countries (core countries) are exploiting semi-peripheral and peripheral countries.
• According to him, crisis of globalisation cannot be solved by new models.

(c) Noam Chomsky

• According to him, march of neo-liberalism has caused irreparable damage to all the countries of the
world. This present model of globalisation has caused problems for all. It is not only limited to third
world countries rather this model of globalisation has caused problems for USA and other western
countries as well.
• According to him, we have witnessed decreasing state expenditure in vital areas because it is also a
part of America's quest for global dominance.

(d) Viewpoint of Joseph Stiglitz

• According to him, globalization has caused democratic deficit in various countries. He is of the view
that globalisation has negatively impacted not only third world countries but western countries as well.
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Globalisation has adversely impacted working classes in both developed and developing countries.
Income disparity can also be seen at bottom level.

(e) Viewpoint of Anathony Giddens

• Globalisation has caused crisis-like situation in many parts of the world and it has become intense
today but he is also of the view that crisis generated by globalisation can be dealt through democracy.
In fact, democracy is the most important idea of our times.

Globalisation in Present Time

A lot of questions have been raised with respect to the present model of globalisation. According to
experts, globalisation has brought income disparity, social conflict, etc. Inequalities have also
increased due to globalisation. Globalisation has caused governance deficit and democratic deficit
in third world countries. Globalisation has caused weakness in the global financial environment. It
has caused significant changes with respect to global finance.

What needs to be done?

• Strengthening global financial institutions because the global financial system remains
significantly weak.
• Present model of globalisation is unable to handle global challenges effectively. That is why,
suitable steps need to be taken to address the crisis of the present model of globalisation.

Global Capitalism, State Sovereignty, and the Future of Nation-States in the Era of Globalisation
The rise of Global Capitalism—characterized by liberalization, deregulation, financial integration, and
global production networks—has fundamentally transformed the nature of socialist economies and
developing societies. Post-Cold War, even traditionally socialist states like China and Vietnam
adopted market-oriented reforms under “Socialism with Chinese Characteristics” or “Doi Moi”
policies, integrating into the global capitalist system while retaining political control under a single-
party framework. This shift has led to hybrid models blending state planning with capitalist
mechanisms, fostering rapid growth but also increasing income inequality and dependency on foreign
investment and markets. Developing societies have similarly embraced neoliberal reforms promoted by
Bretton Woods institutions (IMF, World Bank) under the Washington Consensus, leading to
structural adjustments, trade liberalization, and privatization, thereby transforming their
economies but also exposing them to global market vulnerabilities, as seen during the 1997 Asian
Financial Crisis.
Globalisation has significantly impacted state sovereignty, traditionally understood as the state’s
supreme authority over its territory and domestic affairs. Economic globalization—through
transnational corporations (TNCs), international trade agreements, and global finance—has limited
states' control over their own economies. Political sovereignty is diluted as supranational institutions
(e.g., WTO, UN, EU) influence domestic policy choices. Technological globalization challenges
informational control, with digital platforms transcending borders. Joseph Nye’s concept of “complex
interdependence” highlights that states are increasingly constrained by non-state actors and global
norms, making absolute sovereignty difficult to sustain. However, sovereignty is not entirely eroded
but rather transformed into “pooled” or “shared sovereignty”, where states voluntarily transfer some
powers to global institutions for collective benefits.
The modern nation-state faces a relative decline in authority in the wake of globalization. Economic
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forces operate beyond national borders, leading to loss of policy autonomy in taxation, welfare, and
monetary control. Global governance mechanisms, such as the Paris Climate Agreement or WTO
trade rules, often dictate domestic policies. Moreover, global issues like climate change, pandemics,
terrorism, and migration transcend borders, requiring international cooperation. Yet, the nation-state
remains central to identity, security, and enforcement of laws. Recent trends of economic
nationalism, Brexit, US-China trade wars, and the resurgence of sovereign control over AI and
digital data suggest that while the nation-state is challenged, it is not obsolete. Rather, globalization
has led to a reconfiguration of state power, shifting from absolute territorial sovereignty to a
networked, interdependent, and negotiated form of authority.
Thus, global capitalism and globalization have altered the structure of socialist and developing
economies, constrained state sovereignty, and redefined the role of the nation-state, which now operates
within a complex, multilayered global order rather than being in absolute decline.

Responses towards Globalization

• Globalization is seen as a double movement. There are movements in favor of globalization and
also movements against globalization.
• We see hyperglobalists, pro-globalists, and anti-globalists.
• Globalization exists in various forms, i.e., economic, political, ideological, and cultural.
• It is strongest in its economic form and politically it is in its weakest form.

Collective Globalization Security:

• A well-established system of collective global security aims to maintain peace by ensuring that
states act together to deter aggression and resolve disputes through cooperation. Rooted in
Woodrow Wilson’s vision, it was institutionalised first in the League of Nations (1919) and later
strengthened under the United Nations (1945), particularly through the UN Security Council,
where aggression against one state is treated as a threat to all.
• Such a system provides a framework for conflict prevention, arms control, peacekeeping
operations, and enforcement actions, reducing the likelihood of large-scale wars. Examples
include UN peacekeeping missions, NATO’s collective defence measures, and the Nuclear
Non-Proliferation Treaty (NPT) promoting global security.
• However, challenges persist due to power asymmetries, selective enforcement, and lack of
political will, as evident in the 2003 Iraq War and the Russia-Ukraine conflict, where collective
mechanisms were undermined.
• Thus, while collective security remains a vital guarantee of world peace, its success depends on
universal participation, equality among states, and credible enforcement mechanisms free
from great power politics.

Globalisation from a Third World perspective

• Globalisation, from a Third World perspective, is a double-edged process that has
simultaneously offered opportunities and exacerbated vulnerabilities. It has facilitated economic
integration, technology transfer, and access to global markets, aiding growth in countries like
India and Vietnam.
• However, dependency theorists argue that globalisation has reinforced neo-colonial economic
structures, where developing nations remain raw material suppliers and markets for Western
goods, perpetuating inequality. The IMF and World Bank's structural adjustment programs
in the 1980s and 1990s often imposed austerity, leading to social distress, unemployment, and
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weakened welfare states in African and Latin American nations.

• Moreover, cultural homogenisation threatens indigenous traditions, while global corporate
dominance undermines local industries and environmental sustainability.
• Scholars like Samir Amin highlight that globalisation is shaped by capitalist interests,
marginalising the Global South. Thus, while it offers prospects for development, globalisation
largely reflects asymmetric power relations, limiting genuine autonomy and equitable benefits
for Third World nations.

Globalisation from Western perspective

• From the Western perspective, globalisation over the past years has been both a source of
unprecedented opportunities and significant challenges. On one hand, it has enabled economic
expansion, increased trade liberalisation, and access to global markets, benefiting multinational
corporations and advancing technological innovation.
• The spread of liberal democracy, free-market capitalism, and Western cultural influence
was perceived as a triumph of the post-Cold War liberal order, as argued by Francis
Fukuyama's "End of History" thesis. However, globalisation has also led to outsourcing of
jobs, industrial decline in traditional manufacturing hubs (e.g., Rust Belt in the US), and
widening income inequality. The 2008 Global Financial Crisis, rise of China as an economic
rival, and mass migration triggered populist backlash, seen in events like Brexit and Donald
Trump’s protectionist policies.
• Thus, while globalisation initially strengthened Western dominance, it has also generated internal
socio-economic disruptions and challenged their long-term hegemony.

Globalization from the perspective of the countries of the Global South

• Globalisation has had ambivalent effects on the Global South, creating opportunities but also
deepening structural inequalities. Economically, it facilitated integration into global markets,
increased foreign investment, and technology transfer, enabling emerging economies like India,
Brazil, and Vietnam to experience growth.
• However, dependency theorists (Frank, Wallerstein) argue that globalisation reproduces a
core-periphery structure, where Global South countries remain exporters of raw materials and
cheap labour while importing high-value goods from the Global North. IMF–World Bank
structural adjustment programs (SAPs), especially in Africa and Latin America, enforced
austerity, privatisation, and trade liberalisation, weakening state capacity and social welfare.
Global financial crises disproportionately impacted developing nations, exposing their
vulnerability to external shocks.
• Moreover, cultural homogenisation threatens indigenous identities, while climate change and
environmental degradation, often driven by Northern industrialisation, disproportionately
affect the South.
• Thus, globalisation offers limited benefits while reinforcing asymmetrical power relations,
restricting real autonomy for Global South states.

Linkages between Capitalism and Globalisation

• It is said that capitalism as a mode of production is inherently expansionist. Lenin, in his theory
of imperialism, has suggested that capitalism in its most developed form becomes imperialist.
Hence, Marxist scholars link the present form of globalization with the capitalist process of
accumulation of capital.
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• They believe that there is nothing new in the present stage. The World has witnessed different
waves of capitalist-led globalization in different eras, and the present phase of globalization is the
strongest phase because there are multiple factors present to support globalization.

Linkages between capitalism and globalization can be understood as:

• Capitalism as a mode of production symbolizes the destruction of the feudal mode of production.
• The feudal mode of production was based on the local economy and self-sufficiency.
• It did not permit mobility and land was the main source of wealth. Gradually, feudal lords
dominated the scene.
• Thus, Mercantile Capitalism began, and with geographical exploration, the wealth of this class
increased.
• By this time, Europe also witnessed the Industrial Revolution. Capital became the major source
of wealth.
• It was no more land which earlier used to be considered a symbol of wealth.
• Scholars like Adam Smith gave the theory of a free market economy, and in the context of external
trade, David Ricardo gave the theory of comparative [Link] two theories justified the
centrality of the market and freedom of trade.
• This began the greater movement of goods. In its highest stage, capitalism started exporting capital
in the stage of Finance capitalism.
• The first project that was taken up in India during this finance capitalism phase was Indian Railways.
• Profit is the driving factor of capitalism. Once domestic markets get saturated, then to maintain profit
it becomes necessary to search for other markets.
• Lenin writes that imperialism is inevitable in its highest stage. In contemporary times, it is being said
that the present process of globalization has its roots in the inherent need for capitalist accumulation.
• When the domestic market of developed countries stagnates, then it becomes necessary for them
to restart the project of globalization with greater thrust.
• Thus, through the instrumentalities of the IMF and World Bank, Western countries were able to impose
liberalization, privatization, and globalization on third-world countries.
• In the name of the Washington Consensus, they were in a position to promote globalization across
the world, especially in Third World countries like India.
• Note: After the disintegration of the Soviet Union, a consensus was developed in favor of a market
economy by the IMF and World Bank, and this consensus came to be known as the Washington
Consensus. This consensus in favor of a market economy was promoted by the IMF and World Bank
and it was supported by the USA.

Future of Relationship between Capitalism and Globalization

• This debate began after the economic crises witnessed by the USA in 2008, which raised question
marks about the future of capitalism and the future of the relationship between capitalism and
globalization.
• It was not the first time that capitalism witnessed a crisis and people questioned the model of
capitalist-led globalization.
• There has been a long history of crisis in capitalism. The world witnessed the economic depression
of 1929-1933, and in the last 25 years, the world has witnessed the following crises:
o Internet bubble burst of 2001
o Portugal-Greece and Spain economic crisis in 2016
o The South East Asian economic crisis, 1997
o Economic meltdown, 2008
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• People are predicting different types of futures for this relationship.

• Marxist scholars are thinking about the demise of capitalism-led globalization.
• On the other hand, we see people like Amartya Sen and Joseph Stiglitz talking about the need to change
the present form of globalization.
• Joseph Stiglitz is suggesting the necessity of democratization of global structure and global financial
system also.
• He is talking about linking growth with justice. If developed countries do not change their strategies,
he feels that the process of globalization will enter a dangerous stage.
• Amartya Sen, in his article titled 'Capitalism Beyond the Crisis', argues that we need to revive the
lost spirit of capitalism.
• Capitalism is not the pursuit of wealth as thought by Karl Marx, but it is linked with the ethics of
protectionism.
• However, at the same time, we do have neo-liberals who do not see any crisis in capitalism because
of certain economic crises.
• Scholars like Paul Krugman believe that the crisis of capitalism emerges from the global
imbalances that need to be corrected.
• Once those imbalances are corrected, then capitalism will again move on its march, e.g., the 2008
financial meltdown of the US was due to global imbalances – there was a large surplus in countries
like China, but there was a large deficit in the USA.
• Since the US economy holds a central position in the global economy, the crisis of the US economy
impacted other countries, leading to the global financial crisis.
• It was a regulatory failure. It shows that the problem does not lie with capitalism, rather it lies with
the way it is being managed, and it requires restructuring.
• The above analysis leads us to the conclusion that globalization needs to be reformed.
• It is believed that if globalization is global in the true sense, then it will benefit the countries of the
third world.

Suggestions To Make Globalization More Effective

• Suggestions given by Joseph Stiglitz
o Promotion of global good that leads to equitable and sustainable growth.
o Restoring balance in the relative role of both market and state.
o Redistribution of global surplus to strengthen least developed countries.
o Protection of the poor in both developed and developing countries.
o Formation of the global reserve system.
o Formation of Financial Product Safety Commission.
o Global financial regulatory authority.
• Proposals given by BRICS
o Brettonwood institutions reflect World War II reality.
There is an excessive tilt towards the US and European countries.
This needs to be corrected because many European countries have lost their earlier importance.
Therefore, other countries having more solid credentials should be given important positions in
Brettonwood institutions.
o Russia and China have already floated the idea of having a new international currency as the
world is too dependent on the US dollar, which makes the entire financial system extremely
risky.
 10

o There is a need for a stable, predictable, and diversified international monetary system.
o Strengthening risk management practices.
o Protectionism of developed countries will harm them in the longer run.
• G-7 Proposal
o According to the G7, extraordinary measures to contain future financial crises need to be
taken, and for this purpose, the World Bank and IMF need to be given more powers in the
future also.
• Suggestions given by a global conference of NGOs
o ➢ The economy should be at the service of society and the environment.
o ➢ Equitable resource consumption.
• The existing financial system needs to be changed through deep reforms.

Evolution of Brettonwood Institutions

• A Free Market Economy provides the basis for an expansion of capitalism. In the international
context, the free trade concept began when the British Parliament passed the Neo Corn Laws
(New Corn Laws).
• Britain emerged as a global hegemon. Free trade resulted in the search for markets and raw
materials. Other countries followed Britain.
• Thus, the war for colonies began and the world witnessed the First World War.
• After the war, the economies of Europe were completely devastated. Only the USA benefited from
the First World War because the USA was not directly involved in the war.

The USA was not ready to play the role of a hegemon.

• It forced the countries of Europe to repay the credit given to them, and to make things worse, the
USA started a high tariff on European products.
• This further deteriorated the situation of European countries and they were also forced to adopt
protectionist measures.
• Nations like Germany went on an extreme course. After the end of World War II, attempts were
made to organise the world economy so that the problems which emerged in the 1930s do not
resurface.
• This time the USA was willing to play the role of the hegemon. Communism as a factor was also
responsible for the shift in USA's policy.
• The USA and Britain prepared the principles on which the world economy was to be based.

John Maynard Keynes of Britain and Harry White Dexter of the USA designed the format, and the
Brettonwood conference was called.

Thus, emerged Brettonwood institutions, which are based on the combinations of thoughts of Adam
Smith, Ricardo, and Keynes.
• Free trade became the heart of Brettonwood institutions. IMF and World Bank were created to
support the policy of free trade.
• The World Bank was to reconstruct the European economy.
• Later on, the World Bank started the reconstruction of 3rd World Countries.
• The World Bank was to provide long-term loans, and the IMF was to provide short-term loans to
meet the short-term liquidity crunch emerging out of the trade deficit.
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• There were a lot of hurdles in the emergence of the International Trade Organisation (ITO).
• Hence, instead of ITO, the General Agreement on Tariffs and Trade (GATT) emerged.
• Initially, the Brettonwood system i.e., the system of monetary regulation was not based on free
exchange, and other currencies were pegged against the dollar, while the value of the dollar was
fixed on gold standards.

As European economies revived and the USA started facing a trade deficit, the USA came out of the
Brettonwood System.
• The dollar was devalued by the USA, and now the free exchange of currencies began.
• In this free exchange, the role of the IMF declined.
• Gradually, the IMF's mandate was increased, and it started giving medium-term loans.
• It started giving policy assistance, leading to an overlap between the works of the IMF and the
World Bank.
• Later on, the mandate of the World Bank also changed.
• It focussed more on 3rd World countries and also incorporated the private sector in its activities.
• In the meantime, negotiations for trade continued, and finally, in 1995, the World Trade
Organisation (WTO) emerged.
• Thus, the three institutions became the most important institutions of Capitalism-led
globalization.
• The WTO is still evolving, and negotiations are still going on in the WTO with respect to
agricultural issues.
• Today, it is being suggested that along with the WTO, IMF, and World Bank, even the UN should
be given a greater role in determining economic issues in the world.

World Trade Organisation (WTO)

Factors responsible for the rise of WTO:
• There was an enormous expansion in the volume of global trade.
• General Agreement Tariffs and Trade (GATT) did not cover agriculture and services.
• Newly industrialized countries became powerful forces in international trade.
• They started imitating the products of Western countries rather than developing their own
technology.
• Newly industrialised countries had the advantage of cheap labor and raw material, so they started
producing cheaper goods, and the problem of dumping began.
• Hence, Western countries thought that things needed to be regulated.
• They wanted Intellectual Property Rights to come within the ambit of Trade talks.
• Other issues like Labour issues and environmental issues also came to be associated with trade
talks.
• In the absence of an institution, the world of trade was anarchical, and it was necessary to regulate
global trade, to establish standardized procedures, and to establish dispute settlement bodies.
• The countries of the north and south had their own reasons for joining trade negotiations.

Objectives of WTO:
• Welfare of people
• To provide a platform for negotiations
• For settlement of disputes
• To see the implementation of agreements
• To provide surveillance of the global economy
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General Agreement on Tariffs and Trade (GATT)

• GATT traces its roots to the Brettonwood conference, in 1944, which prepared the structure for
the post-World War II financial system and created two key institutions, namely the International
Monetary Fund (IMF) and the World Bank (WB).
• It became the only multilateral instrument that governed international trade from 1948 until it
was replaced by the WTO in 1995.

Reasons for replacement by WTO

• GATT formalized only a set of rules and agreements but it lacked institutional structure.
• Agriculture and services were not covered by GATT rules.
• Intellectual property rights were not covered under GATT rules.

Functions of WTO
• Trade Negotiations – By providing the structural framework to agreements as well as providing
dispute resolution mechanisms.
• Implementation and monitoring mechanism – It ensures the signatory countries adhere to their
commitments in practice.
• It also produces research based on the impact of the agreements on the economies of the countries
involved.
• It creates an international legal framework that ensures the smooth exchange of goods and
services among the member countries.
• Settling disputes when there is a trade conflict between its member states.
• There are formal hearings until a settlement is reached.
• WTO also cooperates with the IMF and World Bank to ensure global economic policies are fair.
• It helps developing countries by helping them build the capacity to participate in free trade with
developed countries.
• It also gives concessions under certain agreements to least developed countries to ease them into
free trade with other countries.

Future of WTO
• There is a lot of doubt and skepticism over the future of WTO because of the following reasons:
o The leader of the liberal international economic order, the USA, went for increasing
protectionism in recent years.
o A number of regional economic pacts and trade blocs have come into existence that do not
work as per the rules of WTO – mutual reciprocity and non-discrimination.
o These principles of WTO are not followed by mega trade blocs like the Regional
Comprehensive Economic Partnership Agreement (RCEP).
These trade blocs do not treat countries outside the bloc equally.
They are protectionist and discriminatory by nature because they give benefits only to member
countries of the trading bloc.
o The global economy is still in the phase of recovery, which has also reduced countries'
capacity to offer concessions.
o The world's 2nd largest economy, i.e., China, is not in favour of the free market economy
itself.
The USA's protectionism is the result of China's one-sided economic policies to benefit its
own companies.
o On sensitive issues like agriculture, Western countries are not willing to address the concerns
of 3rd world countries.

Way forward
 13

• Modernizing WTO – will require a new set of rules for e-commerce and digital trade.
• There is a need to build trust among member countries so that a new set of fair rules, that will be
beneficial to all member countries, could come into being and unfair trade practices can be
tackled.
• There is a need to come out with new provisions for protecting local markets against foreign
goods, which will help developing countries and will build their confidence in WTO.

Governance in WTO
• Ministerial Conference – It is the topmost decision-making body of the WTO, which meets every
2 years.
• General Council – It is the WTO's highest decision-making body located in Geneva.
• It meets regularly to carry out the functions of WTO.
• The Trade Policy Review Body (TPRB) – The WTO General Council meets as the TPRB to
undertake trade policy reviews of member countries and consider the director general's report
on trade policy development.
• Dispute Settlement Body – The General Council convenes as the Dispute Settlement Body to deal
with disputes between member countries.

Achievements of WTO
• Codification of global trade – WTO has framed the binding rules for global trade in goods and
services.
• It also enhanced the value and quantity of trade by eradicating trade and non-trade barriers.
• The surge in the global value chain – The predictable market conditions and improved
communications by WTO have enabled the rise of the global value chain, and trade within those
value chains today accounts for almost 70% of total merchandise trade.
• Various agreements and trade negotiations by the WTO have recognised that poor countries must
benefit by lowering import barriers on the least developed country's exports.

Issues related to WTO

• Chinese mercantilism – Chinese mercantilism has created tensions in the global trading system.
• China's state-owned enterprises present a major challenge to the free market trading system.
• US-China trade war – It took place during the Trump administration, which not only distorted
the free trade structure of the world but also impacted the trade of other dependent countries.
• There is a lack of transparency in WTO negotiations, as there is no agreed definition of what
constitutes developed or developing countries at WTO.
• Rising e-commerce and digital trade – The global trade structure of the world has changed over
the last 2 decades, and WTO has not kept pace with the changes.
• Rising deadlocks – WTO is facing challenges in terms of unilateral measures and
countermeasures by some members.

Deadlock Is An Important Area Of Negotiation.

• Rise of regional trade agreements – It impacts WTO's multilateral trading system and violates
WTO's principle of member's non-discrimination of all WTO members.

WTO and India

• The participation of India in WTO has increased considerably in the 21st century because WTO
provides a rule-based system in the governance of trade to ensure stability and predictability.
 14

• India has invoked the Peace Clause at WTO for exceeding the 10% ceiling on the support it
offered to rice farmers.
• India gave subsidies worth 13.7% as against the permitted 10%.
• According to the Peace Clause, no country would be legally barred from Food Security
Programmes even if the subsidies breached the limits specified in the WTO agreements on
agriculture.
• India provided the following reasons for breaching the ceiling subsidy limits:
o To provide excess support measures to rice farmers – to meet the domestic food security of
its poor population.
o Public stockholding program – India said that under its public stockholding program, for food
security purposes, rice, wheat, and pulses, among others, are acquired and released to meet
domestic food security purposes.
o Rice, wheat, and pulses released to others are acquired to meet the domestic food security
needs of the country's poor and vulnerable population and not to impede commercial trade
or food security of others.
o Minimum support price – India ensures food security through the Minimum Support Price
program, Public Distribution System, and the National Food Security Act, 2013.

Leadership role of India in WTO negotiations

• India has played a proactive and assertive leadership role in the World Trade Organization
(WTO) negotiations, advocating for the interests of developing and least-developed countries.
• Since the launch of the Doha Development Round (2001), India has emphasized the principle of
special and differential treatment (S&DT), ensuring flexibility for developing nations in trade
liberalization commitments.
• India has been a key voice in agriculture negotiations, opposing trade-distorting subsidies in
developed countries while defending its food security programs and public stockholding under
the Agreement on Agriculture. It has led coalitions such as the G-20 (developing countries on
agriculture), G-33 (food security concerns), and the Like-Minded Group, shaping collective
bargaining power.
• India has consistently opposed efforts to introduce ‘new issues’ like e-commerce and investment
rules without resolving core Doha mandates, advocating a development-centric global trade
regime. It has also challenged developed nations at the WTO Dispute Settlement Body, e.g., in
cases against US steel tariffs.
• Through its coalition-building, strong negotiating stance, and focus on equity, India has
emerged as a leading voice for the Global South, seeking a rules-based, fair, and inclusive
multilateral trading system within the WTO framework.

North-South debate on Agriculture

• Note: The Doha Development Round (2001) aimed to create a fair and development-oriented
global trading system, but progress has stalled mainly due to persistent North-South disagreements.
• Agriculture is the most sensitive and politicized issue in both North and South i.e., developed and
developing countries.
• Countries of the South are mainly dependent on agriculture, making it the most sensitive issue in
developing countries, as it is not only a source of employment for a large number of people but
also their food security needs.
• Developing countries do not think of agriculture only from a commercial perspective; rather, it is
 15

a source of livelihood for a large population, whereas in developed countries less than 5% of the
population is dependent on agriculture.
• The share of agriculture in the GDP of developed countries is less than 5%, whereas it is more
than 30% in developing countries.
• Moreover, developed countries are placed in better climatic conditions favourable for agriculture
and also have better technologies.
• Farmers in developed countries use agriculture for commercial purposes, whereas agricultural
produce is mainly used for survival in developing countries.
• In developed countries, farmers are given huge subsidies by their respective governments.
• When farmers of developing countries are exposed to the international market, they are unable
to compete with farmers of developed countries.
• They are also exposed to fluctuations in the prices of agricultural commodities in the international
market.
• Today, farmers in developing countries are committing suicide, and WTO policies have affected
the food security of developing countries in many ways, resulting in farmers shifting from food
crops to commercial cash crops.
• This has significantly affected the food security of developing countries.

Market access
• It means lowering tariffs and removing non-tariff barriers.
• Western countries continue to impose non-tariff barriers, i.e., Sanitary and Phytosanitary
Measures (SPS) are taken.
• It is also known as the SPS Agreement, an agreement of the WTO negotiated in the Uruguay
round of talks.
• SPS measures are aimed at the protection of human, animal, and plant life from certain risks.
• Under the SPS agreement, WTO sets conditions on member states' policies relating to food safety,
animal health, and plant health with respect to imported pests and diseases.
• In market access, there is a major dispute between India and the USA.
• In 2021, Turkey returned an Indian ship full of Indian wheat, intended for sale in the Turkish
market, on the grounds of the presence of the rubella virus in Indian wheat.

WTO fisheries talks deadlock over subsidies, fairness disputes:

• The WTO negotiations on fisheries subsidies have faced a persistent deadlock between developing
and developed countries due to divergent interests in balancing sustainable fishing practices and
developmental needs.
• Firstly, subsidy disparities are a major cause. Developed nations, such as the EU, US, and Japan,
provide large-scale subsidies, enabling industrial fishing fleets that deplete global fish stocks.
Developing countries argue that these subsidies distort trade and exhaust shared resources, demanding
their reduction.
• Secondly, special and differential treatment (SDT) is contested. Developing countries seek policy
space to support small-scale, artisanal fishers crucial for livelihoods and food security. Developed
countries, however, push for strict subsidy disciplines, citing the need for global sustainability goals
under SDG 14.6, leading to a clash of priorities.
• Thirdly, there is disagreement over overfishing and illegal, unreported, and unregulated (IUU)
fishing definitions and enforcement measures. Developing nations fear that stringent rules could
 16

disproportionately affect their fishers who lack technological and financial capacity for compliance.
• Lastly, data asymmetry and lack of transparency in reporting subsidies hinder consensus.
• Thus, the deadlock arises from imbalanced responsibilities, historical subsidy advantages of
developed nations, and livelihood concerns of developing nations, making it difficult to reach an
equitable, sustainable, and enforceable agreement.

India on COVID-19 vaccines

• India, along with South Africa, proposed a temporary waiver of certain TRIPS Agreement
provisions at the WTO in October 2020 to ensure wider, affordable access to COVID-19
vaccines, medicines, and technologies. The waiver sought to suspend Sections 1, 4, 5, and 7 of
Part II (covering copyrights, patents, industrial designs, and undisclosed information) to allow
production or import of generics without patent barriers during the pandemic.
• India argued that strict IP rules created artificial scarcity, enabling monopolies and worsening
vaccine inequity in developing nations.
• Supported by over 100 developing countries and international organizations, the proposal faced
opposition from developed nations like the EU, UK, and Switzerland, citing concerns over
innovation and R&D incentives.
• India emphasized that public health emergencies must supersede commercial interests and
pushed for a temporary, targeted, and transparent waiver to ensure equitable global vaccine
access, aligning with the WTO’s goal of promoting public welfare over strict IP enforcement.

Bretton Woods Institutions

The World Bank

• The World Bank is an international organization dedicated to providing financing, advice, and
research to developing nations to aid their economic development and strengthen their
economies.
• The World Bank and IMF were founded simultaneously under the Brettonwood agreement, with
the same focus to help serve international governments globally.

Structure of World Bank

• The World Bank Group consists of 5 organisations:
• The International Bank for Reconstruction and Development (IBRD) – It provides debt
financing to governments of middle-income and credit-worthy low-income countries.
• The International Development Association (IDA) – It provides interest-free loans, called credits,
and grants to governments of the poorest countries.
• The International Finance Corporation (IFC) – It is the largest global development institution
focused exclusively on the private sector.
• The Multilateral Investment Guarantee Agency (MIGA) – It promotes foreign direct investment
into developing countries to support economic growth, reduce poverty, and improve the lives of
people.
 17

• The International Centre for Settlement of Investment Disputes (ICSID) – It provides

international facilities for conciliation and arbitration of investment disputes.

Main functions of the World Bank

• Financing countries
• It supplies qualifying nations with low-interest loans, zero-interest credit, and grants to support
the development of countries.

Sharing of information
• Through various entities, the World Bank gives policy advice, research, analysis, and technical
assistance.
• It offers advice and training for both public and private sectors.

Goals of the World Bank

• Ending extreme poverty by 2030
• Promoting shared prosperity

World Bank and India

• India was one of the founding members of the World Bank.
• The World Bank has been a reliable institution for the development and growth of India.
• The World Bank is supporting India's social protection programmes to help the poor and
vulnerable through its assistance.
• The World Bank supports India's Micro, Small, and Medium Enterprises (MSMEs).
• It has given loans of billions of dollars to India for the development of infrastructure in various
areas.
• World Bank has invested in multiple areas in India, including the following:
o Connectivity projects
o Primary Healthcare
o Primary Education
o Swachh Bharat Abhiyan

International Monetary Fund (IMF)

• The IMF was established along with the World Bank after the Brettonwood Conference in 1944.
• It aims to reduce global poverty, encourage international trade, and promote financial stability
as well as economic growth.

Purpose of IMF
• The IMF is one of the main pillars of the liberal international economic order.
It provides short-term liquidity to the countries facing Balance of Payment (BoP) crises.
• In recent years, the IMF has also started providing long-term loans to countries.

Functions of IMF
• Overseeing the economies of member countries.
• Lending to countries with Balance of Payment issues.
• Helping member countries to modernise their economies.
• The member countries of the IMF pay their capital subscription (Quota) when they become
members of the IMF.
 18

• Each member of the IMF is assigned a quota based broadly on its relative position in the World
economy.
• Countries can then borrow from this pool when they face financial difficulties.

Quota Formula
• The quota formula of IMF is the weighted average of the following:
o GDP – 50% weightage.
o Openness – 30% weightage.
o Economic variability – 15% weightage.
o International reserves – 5% weightage.

Grievances of developing countries

• When countries face liquidity crunch, the IMF imposes certain conditionalities.
• Only when those conditionalities are fulfilled can countries get loans from the IMF.
• Developing countries are forced by the IMF to bring certain economic reforms that affect their
sovereignty.
• Less quota is given to developing countries compared to their Western counterparts.

Organizational setup of IMF

• Board of Governors – All member countries are represented either through their finance
ministers or governors of central banks.
• Executive Directors – Only some countries can have their own executive directors, e.g., USA,
Britain, etc.
• Other countries share their executive directors, e.g., Countries of the Indian Subcontinent (except
Pakistan) share their executive directors with India.
• The Managing Director of the IMF always comes from European countries, and the President of
the World Bank comes from the USA (because of the vote share of G7 countries) and enjoys an
overwhelming percentage of the vote share.
• G7 countries consist of – USA, Canada, Britain, France, Germany, Italy, and Japan.

India and IMF

Historical Context and Engagement with IMF:
• India is one of the founding members of the IMF and holds the 8th largest quota share among 190
member nations (2.75% voting rights as of 2024).
• India first borrowed from the IMF in 1966, when it faced a severe foreign exchange crisis, leading to
devaluation of the rupee by 36.5% against the dollar.
• 1991 Balance of Payment (BoP) Crisis:
o India’s foreign exchange reserves had fallen to the level of two weeks of imports.
o IMF extended a $2.2 billion loan, and India pledged 67 tonnes of gold to secure funding.
o This led to the initiation of New Economic Policy (LPG reforms) under PM Narasimha Rao and
Finance Minister Manmohan Singh.

IMF's Role in India's Economic Reforms

• IMF Structural Adjustment Programme (SAP) included:
o Devaluation of Indian Rupee to boost exports.
o Fiscal deficit reduction through subsidy cuts and rationalisation of expenditure.
o Privatisation and liberalisation of public sector enterprises.
 19

o Trade liberalisation: lowering of import duties, dismantling of licensing.

o Financial sector reforms: allowing foreign investment and private banking.
• Post-reforms, India transformed from a state-controlled economy to a market-oriented economy,
becoming one of the fastest-growing economies globally.

Criticism of IMF
• The IMF’s governance structure disproportionately favours developed nations, with the US holding
a 16.5% voting share, giving it veto power on major decisions that require 85% approval. The G7
collectively controls 43% of total votes, limiting the influence of emerging economies.
• IMF loan programmes impose strict fiscal discipline, often mandating spending cuts in health,
education, and subsidies, leading to social unrest (e.g., protests in Greece, Argentina, Sri Lanka).
Critics argue this undermines national sovereignty and democratic policymaking.
• Uniform structural adjustment policies (SAPs)—such as trade liberalization, currency
devaluation, and privatization—are applied across diverse economies, sometimes causing
recessionary pressures and worsening poverty (e.g., Sub-Saharan Africa in the 1980s).
• Nobel laureate Joseph Stiglitz and others argue that IMF bailouts often prioritize repaying Western
creditors, creating moral hazard by socializing private losses and protecting foreign investors at
the expense of local populations.
• Despite emerging markets contributing over 40% to global GDP, IMF quota reforms remain slow,
leaving countries like India, China, and Brazil underrepresented compared to their economic
weight. The 2010 quota reform took six years to be ratified.
• IMF programs have sometimes deepened economic crises by contracting demand through sharp
budget cuts, as seen during the Asian Financial Crisis (1997–98), where several economies
experienced prolonged stagnation under IMF-prescribed measures.
• Decision-making processes lack transparency, with key discussions dominated by advanced
economies, reducing accountability to borrowing nations.

India’s Present Stand in IMF (Post-2000s)

• India actively advocates for quota reforms and a revised governance structure to ensure fairer
representation of developing nations in line with their growing global economic contribution.
• India contributes financially to IMF initiatives such as the New Arrangements to Borrow (NAB)
and Poverty Reduction and Growth Trust (PRGT), positioning itself as a responsible stakeholder.
• India maintains large foreign exchange reserves (~$650 billion in 2025), reducing dependency on
IMF emergency financing and allowing greater policy autonomy in handling BoP crises.
• India collaborates with BRICS and G20 to push for multilateral reforms, greater focus on
development finance, and climate-related funding support for the Global South.
• India advocates for a more flexible approach to conditionalities, emphasizing that IMF policies
must respect the developmental priorities of member nations rather than enforcing uniform
austerity models.
 20

Questions
1. Is globalization essentially a process of 'universalisation' of capitalist modernity? (2015)
2. How has the development of Global Capitalism changed the nature of socialist economies and
developing societies? (2017)
3. Comment: Impact of Globalisation on State Sovereignty. (2006)
4. Do you think that the modern nation-state has been declining in the wake of globalization? Justify
your answer. (2010)
5. "The Political ideology of Globalization is Neo-Liberalism." Comment. (2016)
6. Critically examine globalisation from a Third World perspective. (2010)
7. Examine the nature and dynamics of contemporary globalization. (2011)
8. How is it that economic and neo-liberal globalization is being interrogated from inside even in
developed countries? What are the economic consequences of such globalization? (2015)
9. Discuss the impact of globalization on the internal functioning of the state. (2016)
10. Critically examine the Globalisation in the past 25 years from the perspective of the Western world.
(2017)
11 Critically examine the impact of the process of globalization from the perspective of the countries of
the Global South. (2020)
12. What is globalisation? Why is there an intense debate about globalisation and its consequences?
(2021)
13. Explain the relevance of the Marxist approach in the context of globalization. (2019)
14. "A well-established system of collective globalization security is a guarantee of world peace." Explain.
(2006)
15. Critically evaluate the role of the United States of America in the World Trade Organization (WTO)
dispute settlement mechanism and its implications for the future of the WTO. (2020)
16. 'The constant breakdown in WTO negotiations suggest too many disagreements in world politics'.
Would you agree? (2008)
17. Sketch the leadership role of India in WTO negotiations. (2013)
18. Analyse the stalled progress of Doha Round of WTO negotiations over the differences between the
developed and the developing countries. (2017)
19. India's coalitional diplomacy with the WTO has earned it wide appreciation. What accounts for the
success of India's coalitional diplomacy? (2018)
20. Explain India's position on the waiver of intellectual property rights on COVID-19 vaccines in WTO.
(2021)
21. Explain the role of non-state actors, like IMF, World Bank, European Union and MNCs, in modulating
and transforming the broad dynamics of international relations. (2009)
22. "The IMF, World Bank, G-7, GATT and other structures are designed to serve the interests of TNCs,
Banks and investment firms in a 'New Imperial age'." Substantiate with examples of governance of
new world order. (2016)
23. How are the rising powers challenging the USA and Western dominance in the IMF and the World
Bank? (2019)
24. How far are the world governance mechanisms, dominated by IMF and World Bank, legitimate and
relevant? What measures do you suggest to improve their effectiveness in global governance?
25. The return of trade barriers and economic sanctions has diminished the spirit of GATT. In this context,
discuss the factors contributing to the decline of WTO in recent times. (2024)
26. Identify and evaluate the reasons for deadlock in the WTO negotiations on fisheries between the
developing and developed countries. (2022)