Budget Matters!

A supranational democratic organization requires its own legitimacy as well as independence by its member states: they are represented and participate actively in the decisional chain, but cannot keep the decisional process hostage of their own will.

In order to be free, an international organization needs an adequate financial independence, i.e. its own budget. Without it, its decisions aren’t the result of a balance of values and interests at stake, but become mere negotiations among the most influential capitals and, ultimately, the result of a balance of power –  so undermining the added value of supranationality and multilateralism and reducing to zero the role of individuals. Real independence can be guaranteed only by specific statutory provisions and by an adequate budget.

But how a budget may be an independent one?

In 1970 a strong commitment for financial autonomy in the European Economic Community was mirrored by a genuine system of own resources – basically agricultural and import duties, complemented by a small quota of the harmonized value-added tax. National contributions (in a percentage of gross national incomes) were reintroduced in 1988 in order to complement a decrease in the own resource revenue, which became more and more relevant in the following decades as import duties decreased as an effect of evolving international trade rules.

As a consequence, what was supposed to be a transitional solution was reinforced over the years, reducing significantly the financial autonomy of the Union. It’s not surprising, now, that some States are more equal than others and speak with louder voice!

So, genuine own resources are a necessary complement to a democratic system and resources means – first of all-  taxes.

The ancient slogan “no taxation without representation” may so be easily reversed, as “no representation without taxation” because what could elected representatives do with money which is gracefully granted by the richer (if not pleasing them)?

The debate on which taxes could better fit a supranational system is open and not only in the European Union: carbon taxes, financial transactions taxes, e-commerce taxes? What makes some proposals interesting is that they could have useful side effects, such as reducing CO2 emissions, decreasing inequalities, limiting tax avoidance.

Another interesting path of reasoning is considering some resources which are revenues without being taxes. See for instance the possible income coming from the common heritage of mankind (and taxes on related activities), which could be employed for the benefit of humanity.

Some examples of the “common heritage principle” may be found in international law: in the Outer Space Treaty (1967), in the UNESCO World Heritage Convention (1972), in the never ratified Moon Treaty (1979), in the Montego Bay Convention establishing the Seabed International Authority (1982), in the UNESCO Universal Declaration on the Human Genome and Human Rights.

Which better use could be made of the principle of the responsibility of the present generations towards the future ones than designating some mankind’s sources of revenue to finance the functioning of a democratic global system? 

Democratic Experimentation

A possible paradigm for democracy in international organisation is what I call democratic experimentation.

The aim of it is reinforcing the typical elements of the democratic model – legitimacy, accountability, inclusiveness – inside IOs in the most effective ways, consistently with the specific institutional frame and goals of each organization.

In order to do so, the embryonic forms of legitimacy, accountability and inclusion – already existing in a number of IOs – may be progressively strengthened and may evolve into more effective tools and channels. They may be declined in original ways to be improved gradually.

Why “democratic experimentalism”? Because the need to invent new formulas to adjust to the different fields of action and to the different global public goods involved requires that we proceed empirically by trial and error.

A model in this approach is the European Union, defined as “a new legal order” by the European Court of Justice in the famous Van Gend en Loos decision (1963, Case 26/62). It is a model only in terms of process, i.e. in the ability to proceed by trial and error towards more mature forms of democracy, but not in terms of outcome, which is the product of specific historical, cultural and geographical circumstances.

In other words, each international organization could experience a “legal order formula” of its own for  legitimacy, accountability and inclusion, which would be the result of its own specific features and aims. In order to allow such evolution, it is necessary that statutes and founding treaties  establishing the IOs foresee a clear and accessible revision procedure and that they are not considered as carved in stone.

Cultural and structural differences among the organisations prevent from finding universal solutions. What is necessary is rather to find a method and agree on the values and objective to be pursued. As was the case with the process of European integration, other international organizations could evolve into sui generis  legal orders, never seen before.

The twofold advantage of this approach would be: (i) allowing us to read in a teleological frame a series of small evolutions taking place in the law of international organizations (the multiplication  of complaints mechanisms, monitoring bodies, dialogues with civil society); (ii) giving us a key to interpret and measure their progress.

There isn’t yet a ranking of international organisations according to their democratic standards (as there is for States). Nonetheless, it would be possible to build a set of criteria and data to make it possible.

I’m sure that this would be a valuable exercise… and I’d love to contribute.

 

The Basics of Democracy: 3. Inclusiveness

It could be easy to think that a legitimate governance plus a number of accountability channels give, as a result, a real democratic system. And it is so, impossible to deny.

Unfortunately, it is so in a utopian world, where citizens are really equal. Equality is a precondition to making each vote count and each trial be fair, to give everybody the same opportunities to access democratic rights and to see guaranteed their civil rights. Alas, formal equality isn’t enough and substantial equality is far from being the reality, so we need inclusiveness.

Inclusiveness is the specific target to include citizens into the channels of participatory democracy or to help them access the accountability channels. Without a specific commitment to inclusiveness, the processes to make international organizations legitimate and accountable will remain the privilege of a white, English-speaking elite, with high academic qualifications, connected to the internet. Just have a look at most of the civil society active at the global level and you will see it.

It is OK. I don’t want to delegitimize the civil society active on the global stage or underestimate its precious (invaluable!) avant-garde role. But, after the avant-garde -better soon than late- I hope to see a more diverse, multicultural civil society, really representative of the world pluralism.

A substantial -and not merely formal- democracy requires specific tools for inclusiveness aimed at stimulating the widest possible participation.

Where to start from? Let’s start from formal equality where it is still needed: gender equality (and the right to education for boys and girls), equality before the law, equality no matter the sexual orientation, the ethnicity, the origins and the life conditions.

But then, let’s move to substantial equality: fundamental rights, civil rights, political rights, rights to access and participation. We’ll discover easily that on the side of substantial equality there is still much to do almost everywhere. Nothing seems more difficult than guaranteeing equality before international organizations where we see further obstacles. This implies: overcoming the gap known as the digital divide, both in cultural as well as in infrastructural terms; going beyond the obvious barriers that stem from cultural and linguistic diversity, reaching minorities and disadvantaged groups; overcoming national barriers which may be the result of some governments’ obstructionism. A cultural engagement, here, should go hand in hand with a conspicuous economic investment and with specific strategies.

This point would deserve to be listed among the sustainable development goals…

A Case-Study: The Greek Crisis.

Much has been written about the Greek crisis.

Below, some thoughts on this story seen through the glasses of democratic standards and  -specifically-  through the two lenses of the legitimacy and accountability (3D democracy vision)

The financial crisis, in Greece more than elsewhere, has highlighted the erosion of state sovereignty in key areas of typical citizen-state relationships such as the welfare system and the labor market, in which the need for choices perceived as legitimate – but also accountable – is crucial. Some fundamental rights have been touched, some less fundamental ones have been significantly reduced.

Decisions had been taken by top political bodies (Eurogroup, European Council)  and technocratic institutions (European Commissions, ECB, IMF). Let’s put aside for a moment the good intentions as  restoring sound public finances: the simple truth is that parliaments have been ignored. The Greek Parliament – of course- but also the European Parliament.

The issue regards also the method and not just the matter. The solution to the issue itself -austerity or not austerity- is strongly influenced by the method used as some institutions are more easily driven to deliver rigor than growth. Moreover, they lack the necessary legitimacy and accountability to deal with individuals’ rights.

Conditions were attached to the Greek loan facility – a package of bilateral loans by Euro area member States complemented by an IMF loan. Two intergovernmental agreements were signed and entrusted the Commission to manage the package under strict conditionality. A loan facility agreement was then signed by the Commission on behalf of the Euro area member States and by Greece. Next, the economic conditions were agreed on in a series of Memoranda.

Their respect of the rule of law as well as their compliance to the EU Treaty and the EU Charter of Fundamental Rights couldn’t be assessed by the European Court of justice because of the widespread use of atypical legal acts as well as of their intergovernmental nature.

Why? Why the Eurogroup and the German Government had such a strong voice and the Court of Justice had not? Why the Parliaments were not in the debate? Why, even now, with a clear Greek vote legitimizing a different majority in the Parliament and a different vision we still see the old movie going on again and again?

Just follow the money…

Money is not from the EU, money comes from some European governments and from the International Monetary Fund . With some help from the ECB.

The EU budget is too tiny to cope with the crises: less than 1% of EU GDP. Moreover, the 28 EU countries were not all willing to contribute, so the Eurozone States had to manage the crisis on their own. They did it through intergovernmental agreements (as creating the ESM) and according bilateral loans. The IMF – traditionally leaded by an European-  was very sensitive to the problem (even too much, according to the BRICS).

And here comes the Troika…..

The Troika is nothing more than a committee of creditors, entrusted with the management of the loans. Of course it hasn’t any accountability. Its doubtful legitimacy and lack in transparency have been clearly pointed out by the European Parliament.

If we want to assess its accountability, we have to split it into its three components:

The European Commission is an accountable institution, it has to report to the EP, answer to MEPs’ written questions and could even be dismissed by the Parliament with a majority vote. The ECB too is subject to a monetary dialogue with the EP, even if less incisive than the dialogue the Commission has with the EP. Unfortunately, having them acting together confuses responsibilities and makes harder to assess the role of each institution for the decisions taken.

And then we have the IMF.

There is a story I want to tell you about the IMF in the Greek crisis:

In a IMF Country Report about Greece (June 2013) we can read that due to the process of fiscal consolidation  the country paid a too high a price in terms of social and economic losses: “Market confidence was not restored, the banking system lost 30 percent of its deposits, and the economy encountered a much deeper- than-expected recession with exceptionally high unemployment. Public debt remained too high and eventually had to be restructured, with collateral damage for bank balance sheets that were also weakened by the recession”.  The reports makes clear there were successes as well as “[N]otable failures” in the program.

This is somehow a progress in the culture of the institution: analyzing critically the consequences of their choices. For sure the establishment of an Independent Evaluation Office in 2001 contributed to such improvement. Nonetheless, who is politically responsible if a choice is reported wrong? are there any consequences? The answers are: 1) Nobody, 2) No.
A gap in accountability is more than evident.

There is much to say about the tangle of many potential conflicts of interests inside the Executive Board of the Fund and in the IMF itself that we cannot unravel all of them here (but we’ve done it elsewhere!).

What makes the Greek crisis an interesting case study -unfortunately for the Greek people- is that it makes clear that democracy matters. Beyond matters of principle.

What is also really sad (at least for me) is that Europe is losing its credibility over the Greek crisis.

The Basics of Democracy: 2. Accountability (or The Other Side of the Coin)

According to the Oxford English Dictionary, democracy is

“A system of government by the whole population or all the eligible members of a state, typically through elected representatives”

while the Collins Dictionary gives as first definition

“government by the people or their elected representatives”.

According to dictionaries, legitimacy is the one and only ingredient for a democracy recipe

but…

countless elected governments over the history changed their nature and became autocracies.

Hitler and Mussolini won regular elections and so many actual dictators even nowadays. Who watched the events in Egypt a few years ago, or more recently in Turkey, understands the problem.

That’s why a modern democracy cannot just be legitimate because even a fully legitimate government could take arbitrary decisions, betraying the popular mandate.

The necessary completion of legitimacy is accountability.

Political bodies are held accountable for their choices when they assume full responsibility. Of course, this means also accepting the consequences for the wrong choices, furthermore for the illegal ones.

There is a wide range of accountability tools:

a parliament able to dismiss the government that it doesn’t trust anymore; an impeachment procedure for serious misconduct of ministers or heads of state; a court able to stop or repeal laws contrary to the fundamental social contract (the Constitution, the bills of rights); some constitutional body  able to dissolve the parliament; the right of the electorate to chose new parliament members when disappointed by the previous ones… and the list could go on and on…

Citizens have the right to know how the public money is used, to which extent the objectives have been achieved and what expectations have been met; they have the right to appeal to a judiciary authority if their rights are violated and if those responsible for public interests are taking illicit advantages from their positions.

We are sometimes so accostumed to this other side of democracy that sometimes we end up forgetting how it is essential…. arriving to commit the mistake of thinking that “exporting democracy” (if ever democracy is exportable) just means organizing free elections. A nice democratic exercise but – without accountability – almost useless.

Now, you’ll ask, does accountability exist at supranational level?

Well, there is something, here and there. Often accountability is just hanging on the thin thread of responsibility of national representatives in front of their governments or their parliaments (if democratic!). But here is the good news: it’s slowly growing.

The XX century didn’t see much of that, but now a number of international organisations are establishing mechanisms for individual or collective claims (like the World Bank Inspection Panel); ombudsmen (as UN Ombudsman’ Office created in 2002), independent audit offices.

And we have to give merit to civil society which has struggled for that.

Of course, there is still much to improve. In a real supranational democracy, both political and legal accountability have to be equally developed.

Once more, the European Union arrived first -with its Court of Justice and its institutional system of checks and balances-, even if there is still more than something to improve in the field of economic governance.

In South America, several supranational courts followed the same path. Regional organizations have an advantage over the global ones: a common background of shared values helps.

But what’s more interesting about accountability is that is not so relevant if member states are democratic or not as accountability channels – when established – are open to all the citizens and NGOs, no matter where they are, while legitimacy channels often cut off a good number of them.

This seems to me a good reason to work on the other side of democracy.

PS

If you want to learn more about accountability of international organizations, you can download here the Berlin Report by the International Law Association