Pam Sud recently made a compelling argument for selecting someone from an emerging economy as the next Managing Director of the IMF. It’s an inspiring idea – would that we did see “a new era in internationalism” – but the response of Europeans since the firing of Strauss-Kahn has confirmed what was evident from before this even started: whoever the Managing Director is, he or she will almost surely be from Europe. This is disappointing, if expected. But could there be a bright side? Yes, for three major reasons:
1) Training. Reading through the biographies of past Managing Directors a grand tour of top universities in the US and Europe. Most have doctorates in economics. It’s fairly popular to denigrate the contributions of economists to IMF policymaking, but to discount a background in economics entirely is obviously foolish. First off, irrespective of the actual value of a degree, it’s important to be able to communicate with the economists on the IMF staff and in national governments. Second, we have to look beyond simplistic broadsides against the Washington Consensus or “mainstream economics”. The the best research on international finance, including work that is sharply critical of IMF policy, is done by academic economists, and the management of the IMF needs to be in touch with that literature. This is a fairly weak argument, however, as there are a large number of talented economists from developing countries. It does potentially make the case for someone trained at an American or European university, however. As many as half of my classmates at Michigan would be potential future candidates by this standard, as would a similar proportion of people from other econ departments in the states (US-trained and from a developing country).
2) Governance. The governance track record of developing countries in the international arena hasn’t been great. It’s more than possible for good candidates to run international organizations to come from the developing world; Kofi Annan comes to mind immediately. But if the selection process becomes politicized and is handed off to developing countries, things could go very badly. The absolute mockery that is the UN Human Rights Council is an extreme case. Moving to a region I’m more familiar with, AU policy toward Zimbabwe has been a disaster. The issue, in my mind, is the dominance of strategic interests and weak norms of egalitarianism and the rule of law. Europe isn’t immune to poor international governance – the fact that Strauss-Kahn kept his job for so long proves that – but neither does it have any major disasters. Letting the developing world select the Managing Director can work fine so long as there are clear and enforced guidelines.
2) Connections. The Managing Director of the IMF needs to rally responses to major financial crises, and that means working largely with European countries and America. Having allies in the region, and knowing who to talk to, is hugely important for the Managing Director. Being appointed by a consensus of Europeans automatically means the next Managing Director will have the political connections needed to do the job. This this the most crucial point of all, and the hardest for a developing country appointee to achieve.
These three advantages to a European candidate argue for a new system: perhaps the directorship should rotate across regions, with a well-enforced set of minimum qualifications, and appointees approved by a consensus of major IMF donors including both Europe and the US but also developing economies like China as they increase their share of IMF Special Drawing Rights.
Within reason, a move toward a new era at the IMF is warranted. Here’s hoping the Europeans have the courage to make that move.