Louis Pauly begins Who Elected the Bankers? by conjuring up the mixed feelings that we all have about the prospect of a global economy: we feel a sense of liberation, of ever-increasing expansion, but at the same time feel that something, somehow, is being lost. Remarkably enough, Pauly, who teaches political science at the University of Toronto, argues that we can make clear what lies at the heart of our ambivalence by understanding the history and function of the shadowy organization called the International Monetary Fund. For Pauly locates the IMF's raison d'être in the inevitable tension that arises in modern governments when, on the one hand, they desire to participate in and take full advantage of a global economy and, on the other, they wish to retain "legitimacy" in the eyes of their own citizens. The IMF and organizations like it exist because the governments of individual states remain constantly at odds with themselves.
Why is this so? According to Pauly, the cornerstones of an ideally functioning global economy are two: greater capital mobility and stable exchange rates. However, while these things facilitate such an economy they have a tendency to undermine the "legitimacy" of the government of any individual state. For as a state increases its inflow and outflow of capital-and vast capital mobility among states has become the standard in the '90s-its domestic policy gradually takes a back seat to its foreign obligations, and it thus becomes less and less capable of addressing the concerns of its citizens. (It is no mere coincidence that the recent rise in foreign investment, and investment generally, has gone hand-in-hand with the scaling back of the welfare state.) Many of the state's citizens, in turn, increasingly view the government as ineffective, as unable to meet their needs, and begin to call into question its "legitimacy". Pauly explains that this thought is captured by the "Mundell-Fleming" model, one of the building blocks of macroeconomics, which states, among other things, that a combination of capital mobility and stable exchange rates leads to less "monetary autonomy" (and hence less emphasis on national priorities) among states. The loss of such autonomy is obviously unacceptable to governments, and hence they are willing, when necessary, to abandon their commitment to a global economy; typically, they do this by destabilizing exchange rates (the U.S. did this in the early '70s when it abandoned its commitment to the Bretton-Woods accords), thereby (one surmises) increasing the risk accompanying foreign investment.
When difficulties of this sort arise, when politics and economics inevitably clash, the International Monetary Fund, whose job is "oversight" or "surveillance" of the world economy, steps in. Pauly argues that the international economic plans that have led to the creation of organizations such as the IMF have been in the works for most of this century, since the leading states, in order to remain leaders, have been sounding the charge for an open world market or global economy since well before World War I. (The lesser states, after all, in order to attempt to keep up with us, need our goods, and since, in theory at least, the leading states will also continue to expand ever more rapidly, the lesser states will be in need of an ever-increasing supply of those goods, and hence will become and remain more and more dependent on us.) At the same time, the leading states were aware that such a global economy could threaten the "legitimacy" of participating governments and hence they designed organizations such as the IMF, whose forerunner (as Pauly's painstaking research shows) was the economic area of the League of Nations, to help smooth things over; as Pauly says, governments both want and do not want a global economy, and the IMF will continue to exist as long as this is so. Moreover, as would be inevitable in a situation in which governments wish to continue to reap the profits from, but do not wish to fully commit themselves to, the global economy, the mandate of the IMF has slowly become stronger: its role has changed from making short-term loans to developing countries (whose "legitimacy" would be, for a variety of reasons, in greater question) to managing potentially worldwide economic crises caused by the collapse of big-time players (such as the 1994 Mexican bail-out).
Its mandate remains, however, limited. The IMF cannot dictate the internal policies of states (and in particular those states who are in the driver's seat in the global economy), since according to its mandate it can only hold states "accountable" (but as it is not sovereign, not "responsible") for the impact of their domestic policies on the global economy. Consequently it has little recourse but to cajole them to honour their foreign commitments. This means that we constantly teeter on the brink of severe, even worldwide economic crises: since at any time the legitimacy of one of the players in the increasingly interdependent global economy may be called into question, and since the IMF's oversight is limited, there is reason to worry.
Pauly does not offer any real solutions to this problem. Although he believes that a retreat from globalization would be undesirable, he does not expect governments either to return to a gold standard or to agree multilaterally to stabilize exchange rates, nor does he anticipate world government. He suggests that we further strengthen the mandate of the IMF, but he realizes that governments will never allow it to dictate the domestic policy of individual states. The conclusion he draws from all this could seem rather bleak: unless the current global arrangement continues to deliver widening prosperity, unless growth goes on and on and on, countries have no reason to continue to relinquish their autonomy, and they will, in turn, abandon their commitment to the global economy.
Pauly's book offers us a useful account of the IMF, and sheds light not only on an area that is typically shrouded in darkness but on the problems that arise in the pursuit of a global economy. Still, we may wonder whether his analysis really goes to the heart of our fears concerning globalization. For he argues that the objection to globalization that most of us have is that it threatens our political control and this, in turn, means that we do not have the power to get from our government the goods we want, that the government is not redistributing (or is not because of its foreign commitments capable of redistributing) the goods properly. As long as redistribution of goods works well enough, we have no objection to a global economy, and are happy to reap its rewards. In other words, the citizen's only interest is whether his or her own country will provide the goods he wants and he grants the ruling government "legitimacy" if it fulfills his selfish needs; if enough of us are willing to so grant it, the government stays in power. What holds for citizens holds also for their elected officials: when such officials perceive that those constituents "perceive"-and according to Pauly "legitimacy" boils down to nothing but "perception" (read "appearance")-that those needs are not met, when they fear for their "legitimacy", they are willing to break with the push toward globalization.
But does such an analysis really capture the citizen's, or even the politician's, perspective? Is not the issue at stake in the problem presented by globalization not merely a loss of goods but the gradual erosion of those things to which one feels primary devotion: one's family, one's town, one's country (or not, in other words, one's "state"), and even one's God? (This erosion is achieved by means of, among other things, a constant barrage of advertisements that play on our fears, reminding us that self-interested greed is good, that we should, for example, think about investing for retirement.) Does not the real problem (i.e., that I am no longer a human being) become manifest when I realize that I know and care more about the doings of some micro-chip manufacturer in Japan than I do about my own neighbour?
One of the things that Pauly rightly emphasizes at the outset of his book is that we cannot look at the world in purely economic terms, but must take account of the relation of politics and economics. From his point of view, however, taking politics seriously means only that we need take account of the huge influence that governments and their invention, the IMF, have on the global economy. His picture of the human beings that make up such governments is in fact apolitical: human beings are understood, not as they experience themselves, as beings who are divided between their duties and obligations to others and their wish to pursue their own self-interest, but as purely self-interested, as the expansive engines of the expansive states that fuel (or, when it is in their interest, do not fuel) the expanding, global economy. Seen from this removed, theoretical outlook, the vital aspect of questions raised by problems such as "globalization" is lost.
Pauly might respond to this objection that he is only working within the framework of modern political thought, that he accepts the theoretical picture of human beings that underlies the modern view of the state. And when viewed from within this framework, Pauly's book is useful indeed. But when we take a serious look at this framework and its implications for our deepest concerns, can we really refrain from asking what justifies it?