Most people assume that inequality between the Global South and the Global North (the United States, Western Europe, Japan, Canada, and Australia) has decreased over the past few decades. After all, colonialism is behind us, and the poorer countries surely “catch up” with the richer. Strangely, the exact opposite happened. The per capita income gap between the South and the North has quadrupled since 1960, in what can only be described as a startling pattern of difference.
This trend is due in large part to the power imbalance in the global economy. Put simply, rich countries have a disproportionate influence when it comes to setting the rules for international trade and finance – and they tend to do so in ways that serve their own economic interests, often at the expense of everyone else.
Nowhere is this problem more apparent than when it comes to the distribution of power in the World Bank and the International Monetary Fund, two of the main institutions that govern global economic policy. We might expect representation in these institutions to be modeled on the United Nations General Assembly, or perhaps it is calculated according to population. But they are actually not democratic at all.
The problem starts at the top. The leaders of the World Bank and International Monetary Fund are not elected, but nominated by the United States and Europe. According to an unspoken agreement, the head of the World Bank has always been from the United States, while the head of the International Monetary Fund has always been a European.
Moreover, the voting power of these institutions is skewed heavily in favor of the rich countries. The United States has a de facto veto power over all important decisions, and along with the rest of the G7 countries and the European Union, it controls more than half of the votes in both agencies. Middle and low income countries, which together make up 85 percent of the world’s population, have a minority share.
If we look at voting allocations in terms of per capita terms, the disparities are truly extreme. For every vote the average person in the northern hemisphere has, the average person in the southern hemisphere has only one-eighth of the vote (and the average South Asian has only twenty-one).
Not only is the minority controlling global economic policymaking, but there is also a distinct racial imbalance: on average, the votes of people of color equal a fraction of their peers. If this was the case in any given country, we’d be outraged. We’ll call it apartheid. Nevertheless, a form of apartheid runs at the core of international economic governance today and has come to be accepted as “normal”.
In some cases, the differences between countries are especially striking. Take Bangladesh and Nigeria, both of which were British colonies. At the IMF, today a British person is 41 times more than a Bangladeshi vote, and 23 times more than a Nigerian. This is the twenty-first century. Many decades after the end of colonial rule.
The inequalities that characterize voting power at the World Bank and the International Monetary Fund have their roots in the colonial period. After all, these institutions were created in 1944. Countries that were colonies at that time (such as India) were incorporated into the system on unequal terms, and subordinated to their colonists. Other colonies were not allowed to join until after independence, and in some cases until the 1970s and 1980s. These institutions were designed under colonialism and are still colonial in character in key respects.
The voting power of the World Bank is allocated according to the financial stocks of each country. In the International Monetary Fund, it is mainly based on GDP, with some consideration also being given to a country’s “market openness”. As a result, the countries that became wealthy during the colonial period now wield unequal power when it comes to setting the rules for the global economy. Inequality breeds inequality.
Advocates of this order argue that this is a legitimate approach: it makes sense, they argue, that larger economies should wield more power over decisions about the global economy.
But think about the implications of that claim. In any national political system, we reject the idea that the rich should have more voting power than the poor, and have more influence over economic policy decisions. We will see this as corrupt and morally repulsive. Yet such plutocracy has become a norm in the World Bank and the International Monetary Fund.
These imbalances in voting power help explain why the World Bank and the International Monetary Fund have been able to impose neoliberal structural adjustment programs across the global south over the past 40 years. These programs – focused on privatization, austerity, and forced market liberalization – created lucrative profit opportunities for multinational corporations, but had a devastating impact on the South: during the 1980s and 1990s, they caused lower incomes and higher poverty, and in some cases caused decades of stagnation. And recession. To this day, they still have a negative impact on health outcomes, including infant and maternal mortality. Such destructive policies will not be acceptable under democratic principles.
There have always been calls from civil society and political leaders in the Global South to democratize the World Bank and the International Monetary Fund. At the very least, critics have argued that the leaders of these institutions should be elected in a transparent process. They called for a “double majority” system whereby important decisions not only require a majority of shareholders, but also a majority of member states. This would ensure that the countries of the Global South have a more equitable say in decisions that affect them, and the power to prevent harmful policies.
For decades, these demands fell on deaf ears. But this year they received a push from UN Secretary-General Antonio Guterres, who, while giving a lecture to the Nelson Mandela Foundation, called for democratic reform of the voting power of the World Bank and the International Monetary Fund. This is a historic openness that activists should seize on. If we want to have a fairer global economy, we need to start by decolonizing the institutions of economic governance.
The opinions expressed in this article are those of the author and do not necessarily reflect the editorial position of Al Jazeera
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