A new head for the IMF. Same as it ever was.

Very many people, from those of us who are radical political economists, to more mainstream political scientists and economists, have been writing about reforming the architecture of the global political economy for more than two decades. I made a brief contribution to this debate more than 21 years ago and yet, little has changed; the powers that shape the contours and function of the global political economy remain by and large intact. The powerful remain the rule-makers and the power of the world are rule-takers. To extend the architecture analogy (architects design spaces, and engineers ensure the design is safe and functional) very little architectural or engineering changes have been made.

And so, here we are, again, in the process of appointing a new head for the International Monetary Fund (IMF), and the post will almost certainly go to a European (again), perhaps even to the incumbent, Christine Lagarde. Briefly, before we deal with the structural inequality that shapes the architecture of global governance and the global political economy, Lagarde, a former French Finance Minister, faces criminal charges in her home country. She is accused of negligence over €400m pay-out to businessman Bernard Tapie, who supported Nicolas Sarkozy in 2007 presidential race. It is worth noting, also, that Lagarde’s predecessor, Dominique Strauss-Kahn, was forced to resign following a sex scandal. At the risk of sounding naughty: Imagine the fall-out if two senior international public servants from Africa with dodgy dalliances served successive terms in the same position.

Nonetheless, UK chancellor, George Osborne, formally nominated Lagarde to serve a second five-year term as managing director of the IMF. Osborne’s endorsement came almost immediately after the IMF announced the start of a three-week nominating period for candidates. Lagarde’s current five-year term ends in July, and she is widely considered a sure bet for a second mandate.

What is of concern, in the global context, is that the head of the IMF is always a European, and the head of the World Bank, always a US citizen, and both have a veto in the appointment of the World Trade Organisation’s (WTO) head. The problem is, therefore, structural; it is part of the deal that was brokered at the founding of the Bretton Woods Institutions in 1944. This matter of structural power goes deeper, it is based on an insidious relationship between the World Bank, in particular, the US government, and Wall Street, a concept that has slipped into the lexicon as the “Treasury-Wall Street Axis” (See page 131 of Michael Hirsch’s book: Capital Offense: How Washington Turned America’s Future of to Wall Street)

This understanding has significant penetration among even the most established scholars and international public servants. Most notably, Joseph Stiglitz’s tenure as Chief Economist and Senior Vice President of the World Bank (1997 – 2000), was marked by his criticism of, especially, the IMF for the same reason. (Disclosure: I worked in Stiglitz’s during this period)

Most recently, in the wake of the current global crisis, a former Chief Economist of the IMF, Raghuram Rajan, questioned the excessive influence that Wall Street has on the US Treasury. In his excellent analysis on the current global crisis, Fault Lines: How Hidden Fractures Still Threaten the World Economy, Rajan explains that Wall Street bankers have, effectively, captured the knowledge and policy-bases of a key institution that directs policies at the Bank-Fund. (See short video clip on the book, here)

In general, then, it is impossible to escape the reality that the US has viewed all multilateral organisations, especially the Bank-Fund, as instruments of Washington’s foreign policy. In an estimation of a former employee of the Bank, Catherine Gwin explained that:

“…. the top management of the Bank spends much more time meeting with, consulting, and responding to the United States than it does with any other member country. Although this intense interaction has changed little over the years, the way the United States mobilizes other member countries in support of its views has changed considerably. Initially, it was so predominant that its positions and the decision of the board were virtually indistinguishable,” Gwin wrote in, The World Bank, its First Half Century.

Rajan, in turn, believes that: “The nexus” between Wall-Street and Washington “needs to be broken, probably by recruiting talent from outside Washington, and New York…. Diversity will be key to improving trust.”

A question arises, then: would it be better an African or an Asian candidate headed the Bank or Fund? Yes and no. Yes, because it would signal a shift in dominance, but that would be no more than smoke and mirrors. In most instances, as with the appointment of, say Kofi Annan to the head of the United Nations, approval may be required from, especially, the US and Europe. There is nothing conspiratorial about these statements; it is the way relations in the global political economy are structured.

For instance, Annan was considered to be “another key appointment” of the Clinton Administration to the extent that the Wall Street Journal instructed Annan to “take his lead from Senator Jesse Helms” – a man whom even the Washington post reminded us, was a white racist who fanned the flames of hatred against black people in the US. (For the Clinton-Annan reference, see page 331 of Unvanquished, a United Nations-United States Saga, by former head of the UN, Boutros Boutros Ghali.

No, an African or Asian head of either the Bank or the Fund would be futile, because unless the internal structures of the Bank-Fund are addressed, and the overwhelming power that the US and Europe have in the policies that emerge from these organisations, an African or Asian head of the either institution will be a hollow victory. “An African President of the World Bank Is Not the Solution, When the Bank Itself Is the Problem,” wrote Desne Masie, an analyst of geopolitical economy, international finance and African affairs.

This brings us back to the issue of the architecture of the global political economy, and what seems, for now, to be the improbability of change – at least not until the US loses its military might; Washington has, arguably, become increasingly weak in the global political economy in many respects (except in its military reach) and there is, also, a slight chance that it’s grip on the World Bank may be slipping. Chances are, nonetheless, that for now, Christine Lagarde will, again, head IMF, and many of us will start the cycle of calling for reform of the Bank-Fund all over again. What was that about the more things change…? DM

Photo: Christine Lagarde, Managing Director, International Monetary Fund (IMF), attends the session 'Where Is the Chinese Economy Heading?' of the annual meeting of the World Economic Forum (WEF) in Davos, Switzerland January 21, 2016. REUTERS/Ruben Sprich