PHM-Exch> BREAKING THE CIRCLE OF GLOBAL INEQUALITY.

[Claudio Schuftan]

BREAKING THE AVARICIOUS CIRCLE OF GLOBAL INEQUALITY.

David Woodward



If orthodox economic solutions are no longer valid in our grossly unequal
world, why do these remain the preferred option among decision-makers? The
answer lies not in economics, but in politics.

I started work as a development economist more than 30 years ago, motivated
by the conviction that the gravest global problems had their roots in
economics, and that economics alone could provide their solutions. But,
over the last three decades, I have been forced to the conclusion that the
fundamental problem lies not in economics but in politics.

Yes, economics (though a rather different economics from that currently
practised) could provide solutions; but economics and politics are
inseparable; and unless and until we have a genuine political commitment to
resolve global problems, we will not get the economics we need. As the
dominance of neoliberal economics over the last three decades demonstrates,
it is the economics that follows the politics, not the other way around.
Inequality, as Nicole Metz and Tom van der
Lee<http://www.thebrokeronline.eu/Blogs/Inequality-debate/Inequality-a-political-problem-requiring-a-political-solution>argue
in their blog post, is a political issue.

However, just as the problem is political, so is the greatest obstacle to
its solution. As Naomi
Woltring<http://www.thebrokeronline.eu/Dossiers/Inequality>points out
in her commentary at the beginning of this debate (and as
highlighted in the World Bank’s 2006 *World Development
Report*<http://www.thebrokeronline.eu/Articles/Summaries-of-the-most-relevant-reports>),
political systems in practice give greater power to the wealthy (and to
corporate and financial interests) than to the poor; and this allows the
former to skew decision-making to their own economic advantage. This
skewing of economic policies in turn increases makes the rich still richer,
at the expense of the poor. Economic inequality rises; and this further
increases inequality of power. The result is the most pernicious and
intractable of vicious circles.

Moreover, this phenomenon arises, not only in national political systems,
but equally in the governance of global institutions. In the IMF and the
World Bank, inequality of power is institutionalised in the form of an
“economically-weighted” voting system unthinkable in any democratic
society. Even after recent reforms, this gives a substantial majority of
the votes to a rich minority of developed country governments representing
less than one-sixth of the world population. Even if they all voted
together, the low-income and least developed countries could muster only a
fraction of the votes need to block a major change to the IMF’s rules or
policies; but the US can do this alone. This extreme inequality in voting
power<http://www.eg4health.org/wp-content/uploads/2009/03/eg4hbg2imfgov1e1.doc>is
further increased by a number of other mechanisms which further
disempower the representatives of low-income countries in particular.

The World Trade Organisation is no better. Impeccably democratic as its
one-member-one-vote formal structures may be, the reality is that effective
decision-making takes place behind closed doors in secretive processes
outside these rules, governed by systematic arm-twisting and pay-offs by
the developed countries (see, for example, Fatoumata Jawara and Aileen
Kwa’s *Behind the Scenes at the WTO* <http://focusweb.org/node/549>:* the
Real World of International Trade Negotiation*)

The inevitable result – from the debt crisis through structural adjustment
to the WTO Agreements – is a process of commercial globalisation which has
systematically favoured the financial interests of (mostly rich country)
elites at the expense of the disadvantaged, particularly in the poorest
countries.

Global economic governance is thus characterised by a vicious circle of
political and economic inequality, driven by the ability of a relatively
small advantaged minority to dominate political processes, and their
willingness to abuse this opportunity to further their own financial
interests irrespective of the interests of the disadvantaged and
disempowered minority, and often at their expense. It is this avaricious
circle that entrenches the extreme inequality of global income and wealth.

There is a widespread perception that the global balance of power is
shifting in favour of the developing world. Certainly, a shift is taking
place, reflecting a shift of economic advantage, mainly towards China, but
also to some extent towards other relatively industrialised countries. And
this movement has been given added momentum by the spectacular
self-inflicted wound to the North of the current financial crisis – itself
largely a result of over-reach, both in the North’s abuse of its global
power to secure a reckless abandonment of prudent regulation in global
finance, and in the financial sector’s short-sighted and spectacularly
unsustainable abuse of the opportunities this afforded.

However, this shift in global power also has critically important
limitations. Yes, some more successful and better-off developing countries
now have more influence than they had. The “BRICS” now have a seat at the
WTO table, and the “emerging markets” more votes in the IMF. But their
influence still falls far short of their share of the world population –
even collectively, they at best have the power to say no to an agenda
driven by the North, which is a recipe for inertia rather than progress.

Worse, low-income and least developed countries are still clearly excluded:
their influence in the WTO remains minimal, and they gained nothing from
the recent IMF voting reform. This is critical: not only are their needs
greatest (and least well served by global governance as it stands), but
their interests are very different from – and often diametrically opposed
to – those of the “emerging market” economies whose power is increasing.

Unless and until developing countries, and particularly low-income and
least developed countries, have a say in global decision-making which
reflects their preponderant weight in the world population (84%) rather
than their much smaller weight in the world economy (34% of global GDP),
our progress on development, poverty and global health will be limited.

How, then, can we escape from this vicious circle? The first step is to
break the formal links between economic power and votes in institutions
such as the IMF and World Bank; to establish democratic decision-making
systems, and to ensure that decisions are made through these mechanisms.

We would not for a moment consider an “economically weighted” voting system
at the national level – deliberately and systematically giving rich people
more votes than poor people. Neither would we accept a system governed by
blatant arm-twisting and pay-offs in unofficial, informal and wholly
unaccountable processes behind closed doors while formal mechanisms of
governance are side-lined, as in the WTO. So why do supposedly democratic
governments in the 21st century continue to defend such anachronistic and
explicitly anti-democratic relics of the colonial era at the global level?
Such hypocrisy should be exposed, and developed country governments shamed
into accepting democratic principles in global governance.

However, this is not enough. As long as national governments are themselves
disproportionately influenced by elites and financial and corporate
interests, merely shifting power among them will have a limited effect.
Ultimately, this can only be resolved by reforms within each country (North
as well as South). But on the global stage, a first step might be to shift
the accountability of global institutions from governments to Parliaments.

This would be no more than a partial solution. But, coupled with an
increase in transparency (e.g. live web-casts of major discussions) and
more formal and effective accountability mechanisms (e.g. election of
representatives by the Parliamentarians of the countries they represent,
and regular appearances before Parliamentary committees), this could start
to move power in global institutions towards where it belongs – with the
world population as a whole.

Then, and only then, when we at least begin to weaken the avaricious circle
of economic and political power, if not to break it, might we expect to see
some real progress on global inequality.
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