Apartheid in the World Bank and IMF

Most people assume that inequality between the global South and the global North (the United States, Western Europe, Japan, Canada and Australia) has been declining over the past few decades. After all, colonialism is behind us, and surely poorer countries are gradually “catching up” to richer ones. But, oddly enough, exactly the opposite has happened, with the per capita income gap between the South and the North quadrupling in size since 1960.

This trend is due in large part to power imbalances in the world economy. To put it simply, rich countries have disproportionate influence when it comes to setting the rules of international trade and finance – and they tend to do it in ways that serve their own economic interests, quite 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 (IMF) – two key institutions that govern global economic policy. We might expect that representation in these institutions would be modelled along the lines of the United Nations General Assembly, or perhaps calculated according to population. But in reality, they are deeply undemocratic.

The problem starts at the top. The leaders of the World Bank and the IMF are not elected, but nominated by the US and Europe. According to an unspoken agreement, the president of the World Bank has always been from the US, and the president of the IMF has always been European.

Moreover, voting power in these institutions is skewed heavily in favour of rich countries. The US has de facto veto power over all significant decisions, and together with the rest of the G7 and the European Union, controls well over half of the vote in both agencies. While Middle- and low-income countries, which together constitute 85% of the world’s population, have a minority share.

If we look at voting allocations in per capita terms, the inequalities are truly extreme. For every vote the average person in the global North has, the average person in the global South has only one-eighth of a vote (and the average South Asian only one-20th).

Not only is there minority control over global economic policymaking, there is also a clear racial imbalance at play: on average, the votes of people of colour are worth only a fraction of their counterparts. If this was the case in any particular country, we would be outraged. We would call it apartheid. Yet a form of apartheid operates right at the heart of international economic governance today, and has come to be accepted as “normal”.

In some cases, the differences between countries are particularly striking. Take Bangladesh and Nigeria, both of which were British colonies. In the IMF, a British person’s vote today is worth 41 times more than a Bangladeshi’s vote, and 23 times more than a Nigerian’s vote. And this is the 21st century; many decades after the end of colonial rule.

The inequalities that characterise voting power in the World Bank and IMF have their roots in the colonial period. After all, these institutions were founded in 1944. Countries that were colonies at the time (like India) were integrated into the system on unequal terms, subordinated to their colonisers. While other colonies were not allowed to join until after independence, in some cases well into the 1970s and 80s.  These institutions were designed under colonialism and they remain in key respects colonial in character.

Voting power in the World Bank is allocated according to each country’s financial shares. In the IMF, it is primarily according to gross domestic product (GDP), with some consideration also given to a country’s “market openness”. As a result, the countries that became rich during the colonial period now enjoy disproportionate power when it comes to determining the rules of the global economy. Inequality begets inequality.

Defenders of this system argue this is a legitimate approach: it makes sense, they say, that bigger economies should have more power over decisions related to the global economy. But think of the implications of this claim. 

In any national political system, we would reject the notion that rich people should have more voting power than poor people, we would see this as corrupt and morally repulsive. And yet such plutocracy is normalised in the World Bank and the IMF.

These imbalances in voting power help explain why both institutions have been able to impose neoliberal structural adjustment programmes across the global South for the past 40 years. These programmes – focused on privatisation, austerity, and forced market liberalisation – have created lucrative profit opportunities for multinational companies, but have been devastating for the South. During the 1980s and 90s, they caused incomes to decline and poverty to rise, and in some cases triggered decades of recession and stagnation. To this day they continue to have a negative impact on health outcomes, including infant and maternal mortality. Such ruinous policies would never be acceptable under democratic principles.

There have long been calls by civil society and political leaders in the global South to democratise the World Bank and the IMF. At minimum, critics have argued leaders should be elected in a transparent process. They have also called for a “double majority” system so significant decisions would require not only shareholder majorities but also member-state majorities. This would ensure global South countries have a fairer say in decisions that affect them, and the power to block harmful policies.

For decades, these demands have fallen on deaf ears. But last year they received a boost from UN Secretary-General António Guterres, who, while giving a lecture for the Nelson Mandela Foundation, called for democratic reform of voting power at the World Bank and the IMF. This represents an historic opening, and campaigners should seize it. If we want to have a shot at a fairer global economy, we need to start by decolonising the institutions of economic governance.

This post is the fourth instalment in our blog series: Exploring Banking, Race and Colonialism, and was originally published on Aljazeera.com last November.

Dr Jason Hickel is an academic at the University of London and a Fellow of the Royal Society of Arts. His book “The Divide: A Brief Guide to Global Inequality and its Solutions,” was published by Penguin in May 2017.