A Crisis of Legitimacy and Effectiveness Requires Making International Institutions More Democratic

Although globalization has vastly expanded the demands on global institutions, it has also heightened a crisis of legitimacy and effectiveness. Large parts of the public no longer believe that their interests are represented in institutions such as the International Monetary Fund, World Bank, UN Security Council and the World Trade Organization or that the institutions are adequately accountable for what they do. Representation and accountability have always been weak in these multilateral institutions. But today the weaknesses are glaring because the institutions are being called on by their powerful members to intrude much more deeply into areas previously the preserve of national governments especially in developing countries. Over the past two decades these institutions have increasingly prescribed and required structural and institutional reforms. For example, in the 1980s countries that borrowed from the IMF and World Bank were required to meet 6-10 performance criteria and in the 1990s, some 26.

Efforts to deepen democracy in international institutions must confront the realities of global power. Powerful countries will inevitably invest more energy and political capital in institutions that enable their power to be exercised. Once they are members of an elite club, countries are reluctant to lose that power or see it diluted by opening to new members. This explains why proposals for reform always encounter stiff resistance. And that is why broad acceptance of the principle of democratization has translated into so little progress at the level of specific proposals.

Although developing countries are deeply affected by the decisions of institutions such as the IMF, World Bank and WTO, they have little power in their decision-making. There is an unavoidable democratic deficit in international organizations because people do not get to directly elect (or throw out) their representatives. This would be true even if all member countries of international organizations were flourishing democracies. […] That said, however, the democratic deficit does not rule out improving the representativity of international organizations.

The role of developing country governments in global governance needs to be bolstered through changes in formal representation. This is a necessary (albeit insufficient) condition to redress the existing bias in international organizations. […]

What is needed is to rewrite the way seats and votes are allocated within international organizations, to better recognize the increased stake of developing countries. Their cooperation and commitment to international agreements is vital if any international organization is to succeed in managing globalization.

For this reason the old rules about representation are no longer viable or desirable. Put bluntly, the IMF and World Bank will not be able to do their jobs effectively if they remain tied to structures that reflect the balance of power at the end of the Second World War. In the past 55 years their roles and duties have changed beyond recognition, as have the expectations of their vastly increased membership.

Nearly half of the voting power in the World Bank and IMF rests in the hands of seven countries (the U.S., Japan, France, U.K., Saudi Arabia, Germany, and the Russian Federation). This voting power is exercised in the formal decision-making bodies – the executive boards – of each institution.

Equally important are the informal influences and traditions that shape the work of these organizations. These informal processes further weight the scales in favor of industrial countries. For example, the heads of the World Bank and IMF are chosen according to a political convention whereby the United States and Europe nominate their candidate for each, respectively. Other countries and critics rightly brand the process as undemocratic and insufficiently accountable.

Yet more profoundly, the institutions are often criticized by academics, industrial country NGOs and developing country analysts for basing their economic advice and policy conditionality on a narrow worldview that reflects the interests of their most powerful members. In particular, they are widely perceived as being overly accountable to their largest shareholder, largely through informal influences such as the location and staffing of the organizations and their susceptibility to pressure on select issues.

These concerns about who the IMF and World Bank represent have been heightened as the institutions have begun to prescribe policies over an ever broader range of issues. […] The new role of the IMF and World Bank highlights the need for deeper participation by their borrowers: developing countries.

A primary source of contention relates to the shares of developing and industrial countries in decision-making. Members of the IMF do not have equal voting power. Voting weights are based on two components. Each member has a set of 250 basic votes that come with membership. The second component is determined by economic power. Votes accompany country quotas that reflect the economic strength of countries. Since the formation of the IMF there has been a major imbalance in the evolution of the two sources of voting power.

Basic votes have declined dramatically as quotas have increased. The share of basic votes in voting power has declined from 12.4 % to 2.1%. At the same time, an additional 135 countries have become members, including many transition economies.

During this period the basic nature of the IMF and World Bank has changed. They were created at the end of the Second World War as institutions of mutual assistance. The IMF would provide resources to any country facing temporary balance of payments difficulties. The World Bank would help channel investment to countries for postwar reconstruction and development. This sense of mutual assistance has changed in the intervening years.

Today the IMF and World Bank lend exclusively to developing and emerging economies. Furthermore, their loans are linked to conditions that increasingly impinge on the domestic policies of the state. The result is a new kind of division between creditor countries on one hand, who enjoy increased decision-making power and have used it to expand conditionality, and borrowing countries on the other, who view conditionality as externally imposed. This can be particularly worrisome when there is considerable division of opinion on that policy advice, and when the risks associated with the policy advice are borne almost exclusively by the people of the borrowing country. […]

There is now greater recognition of the need for the World Bank and the IMF to increase the representation of developing countries. They could do so in a number of ways.

First, by increasing the proportion of basic votes allocated to each member.[…] Second, by enhancing the voice of developing countries within the institutions. Formally, all members of the IMF and World Bank executive boards are supposed to appoint the institutions presidents. But by convention, Europeans select a candidate for director of IMF and the U. S. government selects the head of the World Bank.[…] A selection committee for such a post would enable broader participation and transparency.

Another step would be increasing the number of seats for developing countries on the executive boards. At present executive directors from developing countries represent large constituencies and have minimal input on policy formation. […] Third, by making the institutions more accountable for their actions, not just to their board members but also to the people affected by their decisions. Governments are held accountable through a variety of social, political and legal institutions. These institutions must also be used to make global financial institutions more accountable. Specifically, this means ensuring transparency and monitoring and evaluating their rules, decisions, policies and actions. […]

To be effective, the results of all of these evaluations must be published, followed up and investigated, and necessary changes undertaken. This is particularly important for large organizations suffering from considerable inertia.

Without publication of independent assessments of what organizations are doing, it is not only difficult for the public to judge how well or poorly an organization is undertaking its responsibilities, it is also impossible for outsiders to offer support to insiders who recognize the need for change. By publishing critical reports, institutions can catalyze public attention and external pressure for change, helping to overcome inertia or vested interests within the organization. […]

The United Nations Development Program is the UN’s global development network, advocating for change and connecting countries to knowledge, experience and resources to help people build a better life. The Human Development Report is UNDP’s report on development issues. This year’s report, the Human Development Report 2002, focuses on “Deepening Democracy in a Divided World.” Ch. 5, from which this excerpt was taken, is entitled “Deepening Democracy at the Global Level.”