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The launch of the G20 in 2008 was a watershed in the evolution of the global economic governance system.
Despite their numerical dominance, both in terms of the number of countries and in terms of their combined population, developing countries have had very little say in the management of the global economy over the last few centuries.
Between the early 19th century and the Second World War, all of today’s developing countries were either officially colonized or forced to sign ‘unequal treaties’ that deprived them of the right to set their own policies, such as tariffs.
= After the Second World War, these countries started gaining independence and were made members of the United Nations and all that, but they had very little say in the management of the global economy.
Since their launch in 1944, the IMF and the World Bank have been the two pillars of global economic management.
= These organizations, however, are run basically on the basis of one-dollar-one-vote, rather than one-country-one-vote, principle.
= Moreover, the US have a de facto veto in both organizations, as it owns around 18% of their votes and the key decisions require 85% majority.
On top of that, since the mid-1970s, macroeconomic policy coordination has been mainly decided among the G7 countries, with no developing country representation.
However, despite this structure, until the 1980s, the developing countries had a relatively high degree of freedom in their policy choices.
= Partly because of the competition with the Soviet bloc and partly because of their colonial guilt, the leading Western powers were more willing to give space to developing countries during this period.
= For example, the GATT (General Agreement on Trade and Tariffs), which oversaw international trade until it was replaced by the more-powerful WTO in 1995, mainly focused on trade liberalization among the rich countries and allowed developing countries to opt out of agreements that they thought were too burdensome for them.
However, since the 1980s, with the memory of colonialism fading, with the decline and eventually collapse of the Soviet bloc, and with the rise of market fundamentalism in their own economic thinking the developed countries have become much more aggressive in demanding that developing countries adopt what they consider to be ‘good’ policies.
In the 1980s, especially after the 1982 Third World Debt Crisis, using their dominance in the IMF and the World Bank, the rich countries implemented the SAPs (or Structural Adjustment Programs) that pushed for a ‘one-size-fits-all’ package of trade liberalization, deregulation, and privatization in the developing countries (or the so-called ‘Washington Consensus’ agenda).
= Since the mid-1990s, the rich countries have imposed an even broader range of policy changes in the developing countries, covering issues like regulation of foreign direct investment and protection of intellectual property rights, through the WTO and various bilateral and regional trade agreements.
Even when all these policy changes did not prove very effective in promoting economic development, they were continued, because the developing countries suffering from them had very little say in deciding what policies to adopt.
= Even in the WTO, developing countries have not had the influence which you would guess they would have, given the organisation’s one-country-one-vote principle.
= This is because the organization is supposed to work through consensus and therefore votes are never taken.
= Consensus sounds great, but given the disparities in bargaining power between the member states, this in practice means that the rich countries are able to get their ways most of the time.
In the meantime, the relative economic power of the developing countries was growing.
= By the turn of the 21st century, the distribution of voting rights in the IMF and the World Bank looked hopelessly outdated.
= Except the