The retreat of global democracy and values

Kaushik Basu, Professor of Economics, Cornell University, Project Syndicate, Praha

A nasty, unintended side-effect of globalization is its corrosive effect on democracy. Even if individual countries are becoming more democratic, it seems, the sum of global democracy is shrinking thanks in no small part to globalization.

Democracy means many things, but at its core it requires that people choose their rulers and that votes be weighted equally. But globalization means that nations and peoples can exert an asymmetric influence. America can cut off trade with Cuba not only by curtailing its own trade but by threatening punitive action against others who trade or invest in Cuba. Cuba, however, can do little to hurt America's economy. Likewise, China can injure Taiwan in ways that Taiwan cannot reciprocate.

Of course, the powerful have always encroached on the sovereignty of others. Take the story, perhaps apocryphal, of an Indian diplomat showing a map of South Asia to Stalin. "India is a very big country," Stalin observed, and then pointing to Sri Lanka said, "What is the name of this little Indian island?" "That is not an Indian island, sir," the diplomat replied, "it is a sovereign nation." "Why? "Stalin asked.

Thanks to globalization, however, dominant nations have a variety of new tools with which to influence other countries short of war. Foremost is money. Instantaneous electronic links and an improving system of global guarantees allow capital to flow across national boundaries as never before. Rapid withdrawal of such capital can have devastating effects, as we saw in 1997 when Asia's super-performing economies succumbed to financial crisis.

In 1998, during the Asian crisis, the rescue package offered by several industrialized nations -- prominently Japan and the U.S. -- required Korea to lift bans on imports of certain Japanese products and to open up its banking sector to foreign banks (which is what America wanted). People in vulnerable nations have very little say in the imposition of these policies. Trade sanctions for political/security ends also serve the same function.

Another consequence of the freer flow of capital is a greater intertwining of different markets. A fall in the Thai housing market can cause the Thai baht to collapse in ways that could not have happened before; a fall in the Indian rupee can cause a meltdown of the Indian stock market in ways inconceivable ten years ago.

The large presence of overseas investors is the cause here. Suppose a New Yorker buys shares in the Mumbai stock market. For that, dollars are converted into rupees, which are used to buy shares. The aim is not to hold rupees but to make money and eventually re-convert to dollars. Suppose, then, that the rupee's exchange rate begins to fall. The foreign investor will naturally want to sell off Indian stocks. While a fall in the exchange rate with no decline in stock prices gives Indian investors no reason to flee the stock market, if sufficient numbers of foreign investors begin to sell, stock prices will decline so that Indian investors, too, sell their stocks.

What can be done about the erosion of global democracy and accountability? Utopian schemes such as a global government or a global bank answerable to all nations are a distant dream. What is needed is a system in which the poor have a voice alongside the rich in the organizations (the IMF, WTO, World Bank, and UN) that mediate in world economics and international relations.

Today, equity is violated in most international organizations through at least two routes. First, there is the open channel, which gives a larger share of votes to the nations contributing more to organizations such as the IMF and the World Bank.

The second route is the lack of transparency in decision- making. In domestic democratic politics, if the decision-making process is visible to all, it becomes difficult for any group to hijack the agenda. Big business and the military are able to push through their interests much more in Pakistan than in India because India's government is more open to scrutiny.

The same goes for international organizations. Powerful nations, by virtue of contributing senior personnel and money, gain greater access. Decisions taken behind opaque walls are more likely to be diverted to their interests. Take the WTO. While it does subscribe to the principle of one-country one-vote, it is widely perceived as a preserve of rich nations. This is because of what can be called the "green room" effect, that is, what goes on behind the scenes. If the WTO is to be a democratic institution, it must not allow its green room to be hijacked by a few.

This problem is most obvious when drafting international labor standards. Although supposedly designed in the interests of the workers in developing countries, the biggest opposition to them comes from poor countries, and rightly so. The form that these standards take -- and the increasing talk of using trade sanctions to impose them -- is close to what protectionist lobbies in industrial nations seek. This is not surprising given the greater access of rich countries.

The fact that questioning the practices of rich nations (who contribute more funds) exercising more voting power in these organizations sounds outrageous, shows how far away we remain from global democracy. After all, it does not seem outrageous that Bill Gates does not have multiple votes in the U.S. elections on the ground that he contributes more to government coffers. Indeed, the suggestion that Gates should have more votes sounds outrageous.

This is because democracy within a nation is a settled idea. Now it is time to provide more equal voting power to nations irrespective of their wealth, because one of the basic tenets of democracy is that the advantages of wealth should not be compounded by giving the rich extra voting power.

When the idea of "one-person one-vote" arose, feudal landlords predicted chaos in the decision-making process. How wrong they were. For the sake of global stability, economic efficiency and also the fight against terrorism we must instill greater democracy within our international organizations. This may not be in the immediate individual interest of every state, especially big and powerful ones, but is, in the long run, in the enlightened interest of all of humanity collectively.