TFR 57 – The Democracy Deficit in the Global Economy: Enhancing the Legitimacy and Accountability of Global Institutions

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It is becoming difficult for international economic organizations to meet without attracting crowds of protesters against globalization. Some organizers, like Lori Wallach (Director of U.S.-based Public Citizen's Global Trade Watch), attributed half the success of the coalition protesting at the November 1999 WTO Ministerial in Seattle to "philosophically, the notion that the democracy deficit in the global economy is neither necessary nor acceptable." When it was pointed out that the head of the WTO was appointed by democratically elected governments, she replied "'between someone who actually got elected, and the director general of the WTO, there are so many miles that, in fact, he and his staff are accountable to no one."*

Some defenders point out that the WTO is a weak organization with a small budget and staff, hardly the stuff of world government. Moreover, international institutions tend to be highly responsive to national governments which are the real source of democratic legitimacy. Other defenders say that the question of democracy is irrelevant since international institutions are merely instruments to facilitate interstate cooperation. I suspect these arguments are not enough to protect the beleaguered institutions in a world of transnational politics where the norm of democracy has become the touchstone of legitimacy. Even though the organizations are weak, their rules and resources can have powerful effects. Moreover, the protesters are right that long lines of delegation and lack of transparency often weaken accountability. We need to think harder about norms and procedures for the governance of globalization.

Let me start with three definitions, since we can confuse ourselves if we are not clear about what we are talking about: globalization, governance, and democracy. By "globalization" I mean simply interdependence at intercontinental distances, and that distinguishes it from regionalism or localism. Essentially, it's interdependence on a worldwide basis. By "governance" I mean the pattern of ways in which we manage our common affairs. Governments are a subset of governance, but they are not the only way we govern collective affairs. By "democracy" I mean a situation where leaders are accountable and ultimately removable by a majority of the people.

"Islands of Governance" of Globalization Have Been Created

Globalization is driven by two forces: one is technology and the other is policy decisions. So is globalization reversible? The answer has to be "yes" in one sense, but "no" in another. Technology is probably irreversible, but policy decisions are reversible. We have seen periods in which economic globalization has been reversed. Indeed, the levels of economic integration that the world achieved by 1914 were not re-achieved until the 1970s (and on a few measures not yet, particularly migration measures). Reversibility is one of the reasons why we should be concerned about what's going on with the backlash now.

It is said that World War I stopped nineteenth-century globalization. It did; but the 1920s and '30s also brought this about. Karl Polanyi in his book The Great Transformation argues that what really happened with nineteenth-century globalization was that economics outran politics. Essentially, laissez-faire economics created such enormous inequalities between those who profited and those who were left behind that it gave rise to the great social diseases of the twentieth century, fascism and communism, which contributed greatly to the disruption of economic globalization. I don't expect that type of response again, but I do think we have to worry about the backlash. The backlash could change policy decisions and if policy decisions become more protectionist, that in turn would have a net negative effect on the poor. Putting it another way, economic globalization is not sufficient to solve the problems of the poor, but I think it is necessary. If you don't believe me conduct the following thought experiment. Try to think of any country that has prospered that has shut itself off from the world economy. I can't think of any.

The other thing worth noticing is that even if economic globalization is brought to a halt, this doesn't mean that other forms of globalization will stop. Sometimes people say that globalization went on until 1914 and then stopped until late in the twentieth century. That's nonsense. Military globalization accelerated after 1914. After all, what do two "world wars" mean, plus a globe-straddling cold war? Environmental globalization would continue even if economic globalization were brought to a halt by poor policies. Look at global warming, for example. Or look at the spread of the HIV virus. It's worth noting that it took smallpox something like three millennia to reach all the inhabited continents of this globe; it took HIV about three decades. So we may be left by bad policy decisions with the end of the good types of globalization, with only some of the bad aspects of globalization.

That's why people call for more government or governance of globalization. Some people talk about the need for world government. I think when you read the following answers to the questions that were provided to the respondents, there is a unanimous consensus that world government is not going to happen - not world government on the model of a nation-state writ large. In that sense we should not be looking for a domestic model or a domestic analogy as to how we're going to solve this. But there is a great deal of "governance" that already exists. To some extent we're like Molière's Bourgeois Gentilhomme, speaking prose without noticing it. There is not only the United Nations system, not a world government but dealing with a number of global issues. There are hundreds of organizations that deal with different issues. You might say that we have islands of governance in the international system. If you think of trade, if you think of air traffic, if you think of postal systems, if you think of meteorology, all of which have organizations associated with them, a rich set of islands of governance was created in the international system in the second half of the twentieth century.

The "Democracy Deficit" in Current Multilateral Governance

The problem we face now is that the legitimacy of these organizations is being called into question. That gives rise to this issue of the democracy deficit. When you ask people why they question the legitimacy of these organizations, the protesters often say it is because there's a democracy deficit. They are not consistent with the procedural legitimacy of democracy that is essential in the twenty-first century.

The term "democratic deficit" grows out of the literature on Europe and concerns about the role of the European Parliament. The term doesn't transfer well from the European context to the global context. It's difficult enough in the European Union (where the countries are relatively similar) to think of parliamentary control. It's almost impossible to think of a world parliament. Therefore to use this term "democratic deficit" as though we were imagining a world parliament is a mistake. Tennyson's "Parliament of Man" was great Victorian poetry. It's pretty poor political analysis.

When we look at democracy we have to be honest and realize that democracy occurs in nation-states. Democracy occurs essentially when there is a political community. Only when there is a sense of political community will a minority acquiesce in the will of the majority. If we look at this at the global level, will people really be willing to be continually out-voted by the two-and-a-half billion Chinese and Indians? I think the answer is "no"; and we're kidding ourselves if we think that's going to be the shape of the solution. We've got to get away from the idea that the solution will look like domestic democracy.

So democracy occurs in national states and these international institutions are the instruments or the agents of national governments. Since national governments are elected, what's the problem? There are three problems actually.

One is not all the members are democratic.

Second is the issue of long chains of delegation. People sometimes feel that there is such a distance between those who are elected and those who are running the organizations that the legalistic argument is not enough.

Third and perhaps most important, these institutions created in the second half of the twentieth century as the agents of states are, as Gordon Smith put it, actually the agents of parts of states.† What we've developed in the second half of the twentieth century is what Robert Keohane and I have called the "club model" of international organization. Think of GATT and then the WTO: It's a club of trade ministers. Think of the BIS in Basel: It's a club of central bankers. Think of the IMF: It's a club of finance ministers. In other words what you find are parts of governments working with similar parts of other governments but excluding other parts of their own governments. That has been very effective, but it doesn't do very well when you get to the issues which are trade and labor, trade and the environment. Many people are saying, "I don't feel represented when my trade minister goes to Geneva and works with other trade ministers, because I do care about what happens to dolphins or to turtles or to the environment more generally." These clubs of ministers with similar interests in an issue often are not as responsive to the broader democratic public as some people would want.

So there is a set of concerns that people raise which are not illegitimate. The basic point - that these institutions receive their legitimacy through delegation from governments - is true, but not all parts of governments and the delegation lines are very long and some governments are not democratic.

Enhancing Legitimacy and Accountability

That leads to the questions posed in the following pages. I don't have the answers to these questions. I don't think any of us do. But let me give you, in concluding this introduction, the way I would approach answering these questions.

1. First of all, think about institutional design. We should try as we construct international organizations to create ones that minimize the conflict with national democracy. If democracy occurs at the national level, we ought to protect it as best we can. In this regard I would argue that the WTO is actually a very good design. The protesters who have called the WTO an incipient world government make a silly claim. The WTO Director-General has a smaller staff and less of a budget than I have as an academic dean, and less than some of the NGOs that are always plaguing him. But there is another dimension of the WTO. It is able to set rules through the dispute settlement mechanism, and these can interfere with national sovereignty. The important thing in the design of the WTO, which we should use as a model, is that if a democratic majority in a WTO member wants to go back on its international agreement, it can do so. It just has to pay a penalty. That penalty is expensive and painful, but it's a bit like designing an electrical circuit for a house in which you put a fuse. It's better that the fuse blows than that the whole house burns down. What the WTO does is create a system which allows democratic necessities at the domestic level to occasionally prevail without destroying the whole system of reciprocity in international trade. So rather than criticize the WTO, as so many of the protesters have, I think we ought to start studying some of the lessons of the WTO for ways in which we can reconcile democracy at the national level with international institutional design.

2. Second, if democracy occurs at the national level, then part of the solution has to start there as well. We can think of better parliamentary control. For example, Denmark, as I understand it, has set up better procedures than many other EU member-countries for informing its parliament of what's happening in Brussels. Countries could develop better procedures for being informed of what's happening in key international institutions. If there's a concern that "my views aren't represented at the club of trade ministers," there's nothing to stop a national government from adding an environment minister or a labor minister to its own delegations. Better systems for domestic oversight are another way we might begin to solve this.

3. Third is to have more clarity about what we mean by democratic accountability. We sometimes talk as if democratic accountability means that everyone and everything has to be directly elected. That's clearly not the case. You can have well-ordered democracies in which the accountability between a given agency and the electorate is quite indirect. The U.S. Federal Reserve System or the European Central Bank are accountable ultimately to the electorate; but they're not directly accountable because people don't want them directly accountable. They want a different or longer time horizon when dealing with monetary policy. And there is no reason that we should hold international institutions to a higher standard of democratic accountability than we do institutions at home. To argue it's bad that the WTO Director-General is at the end of a long line of delegation, but good that the Chairman of the U.S. Federal Reserve is at the end of long line of delegation, is inconsistent and we ought to point that out. There's nothing in democratic theory that requires constant direct votes on everything for legitimacy.

4. Fourth, we can also turn to instruments of non-democratic accountability. Accountability is more than just elections, or even indirect connection to elections. Markets can help with accountability when organizations have to be alert to markets - for example, when the World Bank is going out to raise funds, or even when governments are considering rules and regulations. Markets are not democratic, but their insistence on transparency and legal certainty can influence and help strengthen democracy. Similarly, reputational and professional lines of accountability transnationally-economists care about what economic decisions are made and lawyers care about what legal decisions are made - are not democratic per se, but they can help to reinforce the accountability of international institutions.

5. Fifth, it's extremely important to increase transparency. A more open process allows legislators, as well as the public at large, to know what's happening. This is where we come to the role of the non-governmental organizations. NGOs represent some of the best and some of the worst. We make a mistake when we lump all NGOs together. Some are terrific. I think we're part of one right here. Another is Transparency International, which works on international corruption. And there are many more. Others claim to represent civil society, but represent only themselves.

The point is that NGOs can play a role in the process a bit like the role of the press in domestic political democracies, which essentially means they can open things up. They can be a source of information. In that sense, they're sometimes what you might call the fourth branch of government. You don't want to bring them in as voting members in the process; they have no legitimacy for that. But to the extent they bring openness to the process and greater transparency, they can contribute to a greater sense of accountability. That probably means you want to increase the opportunities for dialogues with NGOs without actually having representation of NGOs. I would add that any NGO which asks to be included in such a dialogue ought to be held to the same standards of transparency. Only those NGOs which disclose their own membership and their own financing sources ought to be allowed such privileges.

6. My sixth and final point is that we need to experiment more. We have a successful set of institutions developed over the last fifty years; but they are now coming under question. There is no reason we can't look at different models and different types. One of the experiments is actually a very old one, the International Labor Organization, which as far as I know is the only tripartite intergovernmental organization. It goes all the way back to 1918.

A much more recent interesting venture is the International Corporation on Assigned Names and Numbers (ICANN), which essentially governs the assignment of internet addresses. It was set up as a non-profit corporation under California law to avoid the cumbersomeness of a formal intergovernmental organization like the International Telecommunications Union. While some of the board is appointed, there have been direct elections by internet users for other members of the board. These direct elections, when they were first held in the fall of 2000, suffered one of the major problems which can happen in situations like this - they were captured by those who organized well. So the ICANN experiment with direct election was not a full success. But this doesn't mean you couldn't design a way that could be more successful.

Another type of experiment is to think of what are called trisectoral networks, organizations in which part of the membership is from governments, part from NGOs, and part from the private sector. The World Commission on Dams (which the World Bank helped to set up) had 12 members - four from a governmental background, four from an NGO background, four from the private sector. It tried to develop guidelines for how large dams should be created or not created, and has been relatively successful in developing a consensus.

So these are some examples of the types of experiments we could be undertaking to supplement, not to replace, the club model of international institutions that has served us so well so far.

* * *
These are mere suggestions. There is no single answer to the key questions. But the need to develop answers is absolutely essential. Denial of the problem, misleading domestic analogies, and platitudes about democratic deficits will not do. We need changes in processes that allow politics more play and take advantage of the multiple forms of accountability that exist in modern democracies. If we don't develop answers, public opinion is going to be shaped by the demagogues; and we would all be worse off for that. International institutions are too important to be left to the demagogues.

End Notes

* "The FP Interview: Lori's War," Foreign Policy 118 (Spring 2000), pp. 37, 47.
† Smith had spoken to the London meeting on the previous day. See Gordon Smith, "Globalization and Governance" in London 2001: The Annual Meeting of the Trilateral Commission (Trilateral Commission, 2001), pp. 9-12.

Questions

QUESTION 1: Protesters assert that institutions like the World Trade Organization, the World Bank and the International Monetary Fund are effectively accountable to no one. Is there any validity to their claims? Why or why not?

QUESTION 2: While democratic norms have spread across the world, the sense of political identity at the global level remains weak. Does it make any sense to speak of democracy at the global level in the absence of a strong sense of political community? How "strong" is necessary? How long will it take for a minimal sense of community to evolve at the global level in this information age?

QUESTION 3: Within the European Union it is often suggested that a stronger European Parliament will reduce the sense of a "democratic deficit" as the regional community evolves. Does the analogy make sense on a global scale? Can ways be found to apply the legitimacy of elected legislatures at the global level (for instance, committees of national legislators attending WTO or IMF meetings)?

QUESTION 4: Accountability is not assured exclusively through the electoral process even in long-established democracies. In the United States, the Supreme Court and the Federal Reserve System are only indirectly responsive to voters. Professional norms and standards help keep judges and bankers accountable. Is there an analogous process at the global level? In addition to voting, constituencies communicate and agitate over issues through a variety of means, such as letters, polls, Internet postings, and protests. Interest groups and a free press play an important role. What roles can and should NGOs play at the global level? What about the legitimacy and accountability of the NGOs themselves?

QUESTION 5: Representativeness is a critical dimension of legitimacy. Some argue, for instance, that the legitimacy of the IMF suffers from the "unrepresentative" character of its governance. The Fund is "largely governed by the G7, mainly the United States," but "nearly two dozen" IMF members are "systemically significant" to the world economy. Some participants in the Trilateral Commission's Study Group on East Asia and the International System were critical of the relatively limited clout of East Asian countries in multilateral institutions created and run by Americans and Europeans. How should we think about the representativeness of the governance of the Fund, Bank and WTO? What changes should be made?

QUESTION 6: Defenders of international institutions could experiment to improve accountability. Transparency is important. Global economic organizations could provide more access to their decision-making process, even if this requires delayed release of records in the manner of the U.S. Supreme Court and Federal Reserve. International non-governmental organizations could be welcomed as observers (as the World Bank has done) or allowed to file amicus curiae briefs in WTO dispute settlement cases. In some cases, such as the Internet Corporation on Assigned Names and Numbers (ICANN), experiments with direct voting may prove fruitful, although the danger of capture by interest groups remains a problem. Hybrid networks that combine governmental, intergovernmental, and non-governmental representatives, such as the World Commission on Dams, are another avenue to explore. What experiments in processes and procedures would you recommend?

Authors

Joseph S. Nye, Jr., Dean, John F. Kennedy School of Government, Harvard University; former U.S. Assistant Secretary of Defense for International Security Affairs
Jessica P. Einhorn, Dean, Nitze School of Advanced International Studies, Johns Hopkins University
Béla Kadar, Ambassador of Hungary to the OECD, Budapest
Hisashi Owada, President, Japan Institute of International Affairs, Tokyo
Luis Rubio, Director-General, CIDAC (Center of Research for Development), Mexico City
Soogil Young, Guest Scholar, Institute for Global Economics, Seoul

Table of Contents

Introduction
Joseph S. Nye, Jr.
Questions, Prepared Answers, Discussion
Questions 1, 2, 3, 4, 5, & 6
Prepared Answers
Discussion
Answers prepared by: Jessica P. Einhorn, Béla Kadar, Hisashi Owada, Luis Rubio, and Soogil Young

  • Topics: Economics, Trade
  • Region:  North America, Europe, Middle East, Africa, Pacific Asia
  • Publisher:  The Trilateral Commission
  • Publication Date:  © 2003
  • ISBN:  0-930503-84-8
  • Pages:  96
  • Price:  $15 US plus shipping and handling
  • Source:  Brookings
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  • Complete Text: Click here to download
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