The protesters who make a habit of disrupting big international financial gatherings have wrought at least one desirable change. The sprawling annual meetings of the IMF and the World Bank have been slimmed down this September. But this gesture of modesty has not silenced the critics. The global financial establishment is under unprecedented attack-not just for the alleged harm it causes, but for its perceived lack of legitimacy.
Joseph Stiglitz, the former World Bank chief economist, delighted the anti-globalisers recently with his claim that: "The most fundamental change that is required to make globalisation work in the way that it should is a change in governance."
The problem, he says in his book Globalisation and its Discontents, is that international financial institutions are not democratic enough. "The IMF… affects the lives… of billions throughout the developing world; yet they have little say in its actions." Rich-country bankers call the shots. Moreover, these financial mandarins operate in secret. This limits public scrutiny-all the more important when officials are not directly elected-undermines democratic accountability and breeds suspicion.
Undeniably, the IMF and the Bank are undemocratic and often secretive-as, indeed, are many of their critics, such as Greenpeace. So are other lending institutions, such as Barclays Bank. So what should be done? Stiglitz calls for three big reforms: a change in voting rights at the IMF and the Bank to give poor countries a bigger say; changes to ensure that it is not just the voices of finance ministries and bankers that are heard there; and greater openness to improve their legitimacy and democratic accountability.
Breaking the stranglehold that rich countries-in particular, the US-have over the IMF and the Bank seems reasonable. People in developing countries not only outnumber those in rich ones five to one, they are also the main beneficiaries (or victims) of IMF and Bank decisions. One option is to weight voting rights at the IMF and the Bank according to population. Another is to copy the WTO, where each country has one vote and a veto.
Unfortunately, in the unlikely event that rich countries agreed to it, a change in voting rights that gave poor countries control of the purse strings would not work. Banks cannot be run by their borrowers. While the WTO sets rules that apply equally to all, the IMF and the Bank basically lend rich countries’ money to poor ones. They do make mistakes, but allowing developing countries to decide how and when money is lent to them would make matters worse. Imagine what would happen if China, India, Indonesia and sub-Saharan Africa-which together account for just over half the world’s population-could help themselves to international loans at will.
Developing countries should not be given a majority vote, but they deserve a louder voice. Let them make the case for the help they want. Others beyond the narrow policy-making elite in Washington should be consulted too. In particular, NGOs, especially those from poor countries, often have valuable insights. (The Bank is already giving NGOs a bigger voice. Many NGO specialists work in the Bank’s field offices and NGOs with relevant expertise are involved in most of its projects.)
But the biggest change needed is that international institutions should become more open. In a democratic age, secrecy is unacceptable (save in exceptional circumstances). Our parliaments meet in public so we can see what is being decided in our name. Our courts operate openly so that we trust that justice is being done. International economic policy is too important to take place in private.
Secrecy is a refuge for the wicked and the incompetent-and casts a shadow over even the good and the wise. I know this from my time working at the WTO. Governments use the cover of secrecy to blast the WTO for failings that are either invented or their own. Thus a minister who had participated in negotiations but had failed to get his way, or made a concession that he was loath to admit publicly, would claim that the decision had been taken behind his back. Other critics would infer skulduggery where there was none: for instance, an impartial dispute-settlement ruling that happened to benefit a US company would be put down to illicit corporate influence. What is true for the WTO is even more so for the more secretive IMF.
Defenders of the status quo object that international organisations could not function if they became more open. The officials who enjoy an easier life working in private certainly have a vested interest to claim so. Yet holding trade negotiations in public, for instance, might make them easier: governments might be too ashamed to face the public with their brazen defence of sectional lobbies at the expense of the national interest. Sunlight is the best disinfectant. Such a move would also dispel fears that the WTO is plotting to take over the world. Equally, as Stiglitz says, IMF policies ought to be debated publicly: what is proposed, why and the implications for winners and losers all ought to be discussed before the court of public opinion.
As I argue in my new book, Open World: The Truth about Globalisation, global institutions that are seen to be open and accountable will have more legitimacy and thus be more effective. They cannot escape from politics: they deal with highly political issues. They must become more political, not less.