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Government-Business Relations, Do international institutions such as the WTO and the OECD help or hinder democracy? Discuss, drawing upon the concept of the “democratic deficit” and using examples from the case study countries. Essay

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Business iii

Analysis of whether international institutions hinder or support democracy




The objective of this paper is to assess the position of international institutions in democracy. First, it is important to understand the concepts of democracy and democratic deficits before progressing to show how international institutions hinder democracy. Democracy is not limited to the freedom to make decisions but also being empowered economically, political, and socially. Some of the elements that will be considered when discussing democratic deficit in international organizations are membership, participation, independence, and accountability.

Democracy and democratic deficit

Democracy is a government that allows eligible citizens to take part in electing its representatives, directly or indirectly. Hook (2011) is convinced that democracy allows people of a country to select a common goal, choose freedoms that they need, and make decisions concerning their society and the government. Direct democracies empower people to contribute directly by making proposals, voting, and changing the constitution. This type of democracy existed in ancient Athens where people met frequently to take a vote on local issues and laws. Indirect democracy on the other hand allows representatives to vote on behalf of the people. Semi-indirect democracy merges indirect and direct democracy. While the elected representative votes in a legislature, citizens on the other hand vote directly on particular issues and referendums. Within semi-direct democracy, there exist constitutional democracies, parliamentary democracy, federal republics and representative democracies whose supreme power rest with the people who then proceed to elect their representatives.

On the opposite side of democracy, there is democratic deficit. A research by Tamara and Simeon (2012) shows that low voter turnout, dissatisfaction with political parties, and weak link between the people and the state characterise democratic deficit. Lax and Phillips (2012) clarifies that democratic deficit lacks responsiveness and congruence, which are essential factors in democracy. While responsiveness implies positive relationship between opinion and policy, congruence mean that policy reflects opinion by the majority.

Democratic deficit in International institutions

The emergence of international institutions has been accompanied by a myriad of problems revolving around democracy. At the moment, boundaries of a nation have decreased compared with boundaries of decisions made that affect the people of a nation (Zweifel, 2006). This means that decisions made outside the national boundaries can now influence daily lives of those who did not participate in making the decisions. A specific example is the case of European Union, which decides on an interest rate that affects people in various economies. Such decisions temper with autonomy of a country and democratic space available to the citizens.

In assessing international institution in terms of democracy, it is necessary to pay attention to appointment or rather membership. World Trade Organization, International Monetary Fund, World Bank among others has failed in this respect when compared with the North Atlantic Treaty Organization, NATO. NATO for example, does not accept members who have not secured democracy and allowed civilians to control the military (Kohn, 1997). The argument for civilian control of the military is that it presents an opportunity for a country to be critical on values, institutions, and practices that reflect the needs of the people as opposed to satisfying aspirations of military leaders. Secondly, NATO believes that democratic control of defence creates a transparent and efficient military different from the one that runs in social seclusion (Carnovale, 1997). Thirdly, NATO holds a view that democratic control of defence develops a culture of acceptance among the general population, which is necessary especially when seeking for national resource allocation. These elements contribute to democracy.

Participation is another facet of democracy that lacks in many international institutions. World Trade Organization maintains that retaliation of state against state ought to be centrally authorised. This implies that the power to make decisions have been removed from the hands of the people. On the other hand, Organization of Economic Cooperation and Development convention on anti-bribery empowered domestic courts to enforce the rule (OECD, 2014).

Independence is critical for a democratic international organization. Judicial system such as the international criminal court has been criticised for lack of independence. A case in point is the prosecution of Kenyan leaders following the 2007/2008 post-election violence. The African Union particularly condemned ICC on grounds that it was being used by western countries to impose leaders on Africans.

International institutions are also seen to undermine democracy in how they run their daily affairs. International Monetary Fund for example requires borrowers to meet certain IMF policy requirements before securing funding. Some of these policies touch devaluations, tax and interest rates, cuts in public programs, and tempering with consumer price supports (Nelson & Wallace, 2011). These requirements are not friendly to a country and can instigate a series of social protest such as was witnessed in Greece. Violent social protest in Greece was the result of government’s plan to sell off government owned corporation in order to succeed in securing an IMF loan (O’donovan & Molloy, 2014). The IMF austerity measures have led to massive social instability across the African continent consequently hindering democracy.

The mere fact that International Monetary Fund continue to insist that interests of international financial investors precede the interests of citizens of a nation places democracy at the verge of collapse. Such requirements have made it difficult for countries to source funds for purposes of educating, developing, and feeding its national citizens. IMF and World Bank are motivated by development agenda hence pay attention to the needs of wealthy nations while leaving underdeveloped countries to wallow in poverty. Adoption of trade liberalization requirement saw Mexico experience a fall in real wages, rise in poverty and inequality while the country plunged into massive debt burden. The Mexican example demonstrates how IMF policies subject residents of a country into difficult situation just to meet the requirements of international investors. In many parts of Africa, IMF loans are accompanied by stringent measures that have impoverished the continent. Regardless of the fact that Colombia suffered from recession and social unrest, IMF still pressed for social service cuts in the country. These are just some of the examples to illustrate attempt by IMF to meddle with politics, economics, and social organization of a country.

The issue of Structural Adjustment Program also emerges when discussing democracy and international institutions. To be considered in the program, IMF insists on economic reforms. The requirement that a country should liberalize the market in addition to privatizing some institutions has adverse effect on the economy. The IMF proposed adjustments such as reduction of spending, government budget, and subsidies are intended to speed up repayment of borrowed funds. Under this program, it is probable that schools will be forced to hike their fees consequently leading to high illiteracy rate and poverty cycle. Secondly, Structural Adjustment Program implies that the borrowing nation should increase interest rates and remove restrictions on foreign ownership. This has the impact of increasing profits made by foreign investors while draining the borrower. Domestically, businesses suffer because they cannot borrow funds due to high interest rates. Thirdly, Structural Adjustment Program requires the borrower to remove import tariffs and concentrate on export economies instead of subsistence farming. Since a country is now paying attention to production for export, local consumers end up suffering from malnourishment. Moreover, high rate of resource exploitation for purposes of exportation causes degradation and pollution. International organization therefore continues to propagate democratic deficit across the globe.

Notwithstanding the fact that World Trade Organization is a democratic institution with votes distributed to all members, poorer nations find themselves unable to express their positions during WTO negotiations. Dominating the negotiations are powerful countries including United States, Canada, the EU and Japan. During negotiations, the developed economies make a proposal while the poorer nations are only invited green room talks only to confirm an agenda. The structure of negotiation in World Trade Organization therefore blocks out poorer economies from participating actively in international trade issues (BBC, 2005). The other example is the EU Council of Ministers and the UN Security Council, which operates in an environment where some states are considered more powerful compared with others.


The discussion covering on transparency, participation, accountability, and membership have shown that international organizations do not enhance democracy. Trade finance within international organizations like WTO, IMF and World Bank favour developed countries at the expense of developing nations. Specifically, the IMF and World Bank have required borrowers to adhere to particular rules before receiving any funding. The rules cripple the people of a nation from making democratic decisions. On the other hand, proposals at the World Trade Organization are mostly negotiated by advanced economies hence leaving developing economies without any role. The paper appreciates that participation is essential for democracy.

Reference List

BBC 2005, ‘World Bank and IMF ‘undemocratic’, BBC News, 15 April, viewed 8 May 2014, http://news.bbc.co.uk/2/hi/business/4450749.stm.

Carnovale, M 1997, ‘NATO partners and allies: Civil-military relations and democratic control of the armed forces’, NATO Review, vol. 45, no. 2, pp. 32-35.

Hook, SV 2011, Democracy, ABDO Publishing Company, Minnesota.

Kohn, RH 1997, ‘How Democracies Control the Military’, Journal of Democracy, vol. 8, no.4, pp. 140-153.

Lax, JR & Phillips, JH 2012, ‘The Democratic Deficit in the States’, American Journal of Political Science, vol. 56, no. 1, pp. 148–166.

Nelson, SC & Wallace, GP 2011, Are IMF Programs Really Bad for Democracy? Working Paper No, 11-004.

O’donovan, D & Molloy, T 2014, ‘EU/IMF visit sparks violence in Greece,’ The Independent, 7 May, viewed 7 may 2014, http://www.independent.ie/business/world/euimf-visit-sparks-violence-in-greece- 26731854.html.

OECD 2014, Bribery in international business, viewed 8 May 2014, http://www.oecd.org/daf/anti- bribery/countryreportsontheimplementationoftheoecdanti- briberyconvention.htm#.

Tamara, PL & Simeon, R (eds) 2012, Imperfect Democracies: The Democratic Deficit in Canada and the United States, UBC Press, Vancouver.

Zweifel, TD 2006,  International Organizations and Democracy: Accountability, Politics, and Power, Swiss Consulting Group, Inc, New York.