Global Policy Forum

Two Economic Giants, How Many Votes?


By Daniel Altman

International Herald Tribune
April 3, 2007

The World Bank, the International Monetary Fund, the World Trade Organization - the United States manages to dominate all three groups and more, thanks to its economic might, or at least the economic might it had when those organizations were conceived. But how much of that power will it have to cede to China when that country outweighs U.S. productive capacity? As of this moment, it looks inevitable that China will someday be the world's biggest economy, a status that will prove its adeptness at taking advantage of globalization. Its people will still have lower standards of living than those in the United States, Europe, Japan and several other countries, but it will be able to make a strong case for a parallel globalization of the power currently concentrated in Washington.

The process is already starting. In September, China was granted a quarter more votes in the IMF as an acknowledgment of its growing economic importance. It still lags far behind the United States, though, with less than 4 percent of votes on the IMF board of governors, compared with almost 17 percent for the United States. And among the executive directors who direct the fund's day-to-day business, the United States, Japan, Germany, France and Britain have permanent appointees; China's member must be elected, though its economy is already larger than those of France or Britain.

China will have a case for picking up more votes as its growth continues, but these may eventually have to come at the expense of the more established members, rather than of the developing countries who claimed that they would lose voting power under the new formula. Those further shifts won't happen automatically. The established members must allow the system to change. There's no guarantee it will. Even though the readjusting of voting power in the IMF is a regular process, the United States made little secret last year of the fact that it was funneling more votes to China for a reason. Washington wanted Beijing to take more responsibility for international financial imbalances - in other words, to allow the yuan to float on world markets. If Beijing doesn't cooperate to Washington's satisfaction, additional votes could be a long time in coming.

Gaining power in the World Bank could be still more difficult for China. Shares in the bank are supposed to be distributed based on votes in the IMF. But the bank's board of governors has the final say, and it increases the volume of shares - called subscriptions - only when it feels that the bank needs more capital. It hasn't felt that way lately, so there has been no immediate effect from China's advancement at the IMF last year.

In the meantime, China could still participate more actively in one important part of the bank, the International Development Association, which offers aid to the world's poorest countries. The association is promoted as a source of success stories by the bank, with countries like South Korea and Turkey having converted themselves from recipients of aid into donors. China can, in theory, donate as much as it wants to replenish the association's funds - potentially buying some influence - yet it donated nothing to the most recent collection, in 2005.

The World Trade Organization is an even tougher nut to crack, since it works on a consensus system; each member has a veto. Still, the United States has found other ways to dominate its operation, for example by initiating more trade disputes (and being the respondent in more trade disputes) than any other member. And only the United States and the European Union participated in the backroom negotiations at both the Uruguay round of trade talks in the 1990s and the Doha round that is currently under way.

As the one-to-one rivalry between China and the United States evolves, the European Union will offer an interesting counterpoint. Were it to be a single country, rather than 27 member nations, the EU would have the biggest economy in the world. If it voted as a bloc in the IMF, it would control almost a third of all voting power, nearly twice the share of the United States. But it is the United States that usually seems to take the lead in setting IMF policies. Similarly, in the WTO, the United States speaks with a single voice that emanates directly from the president, while the European Union delegate is pulled from all sides by the conflicting priorities of member countries, reducing his maneuverability.

China won't have these problems. Its central government brooks even less resistance than the White House, and it doesn't need the approval of a Congress to gain negotiating authority. If China obtains the power currently held by the United States, it will be able to drive international economic policy the way no nation has before. Its recent projections of economic power through corporate acquisitions and grants to poor countries may be only a sneak preview of what is to come.

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