Jakob Vestergaard and Robert H. Wade
The Western hegemony of the past 200 years is ending as power shifts towards the East and as Western states lose the authority to uphold a rules-based multilateral order. In the wake of the Great Crash of 2008 the G20 leaders took steps to bolster the multilateral order, including reform of the governance of the International Monetary Fund (IMF) and the World Bank so as to reflect the increasing economic weight of developing countries. The executive boards of both organizations affirmed that the primary criterion for allocating voting shares should be shares of world GDP.
We show that the reforms at the IMF and the World Bank have substantially failed to meet their ostensible objectives. First, in both organizations the developed countries gained voting share relative to GDP share between 2009 and 2014. Second, countries continue to vary widely in their share of votes relative to share of world GDP; in both organizations some countries have six times or more the votes relative to GDP of others. Politicians and analysts should give attention to achieving more equitable governance in these important multilateral organizations. At the end of this article we show how this could be done.
The formula should aim to strengthen regional groupings of countries, by allocating a significant fraction of total votes as ‘regional basic votes’ (to be distributed within regions on the basis of shares of regional GDP).
Western states must assume responsibility for taking these steps. Their present reluctance reinforces the already alarming drift to gridlock in global governance, and incentivizes small groups of states to establish ‘coalitions of the willing’ and competing power blocs.
The formula should raise the share of basic votes (given to all member countries equally) to at least 10 per cent, as a way to protect the position of the low income countries.
To strengthen the multilateral order the Bretton Woods organizations should make a more determined effort than hitherto to adapt their governance structures to changes in the relative economic importance of countries.
They should agree to a new quota formula that establishes a more consistent link between a country's share of world GDP and its share of votes. The new formula would reduce the current voting power of some European countries and increase the voting power of some emerging market economies.