Fuelling authoritarianism: The role of the Fund and Bank in eroding the social contract
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Article summary
- US tariffs, hostility to multilateralism and pursuit of expansive presidential authority rekindle debates about rise of populism and authoritarianism.
- IMF and World Bank have expressed concern about threats to the social contract and democratic backsliding for decades.
- Yet IMF and World Bank policies remain unreformed and continue to contribute to the dynamics that threaten the democratic state.
US President Donald Trump’s aggressive use of trade tariffs, attacks on central bank independence (see Observer Summer 2021), the institutions of the democratic state, multilateralism, overseas development assistance, and use of industrial policy have rekindled debates about the rise of populism and authoritarianism, and the decline of liberal democracies. Havard Professor Dani Rodrik argued in 2023 that the reaction to heterodox trade policies amounts to a misrepresentation of history, where the economic, social, environmental and sovereignty costs of hyper-globalisation are ignored and the benefits of greater policy autonomy forgotten. This is particularly true of the World Bank and IMF, where their extreme democratic deficit allows Global North shareholders to pursue industrial policies at home while using the Bank and Fund to foster globalisation, austerity and de-risking of international private capital flows in the Global South.
July’s 4th Conference on Financing for Development (FfD4) produced the disappointing Seville Commitment, which failed to fully realise demands to reform the World Bank, IMF and the wider financial system (see Observer Spring 2025). The conference showed that, despite concerns about rising inequality and political fragmentation outlined in the World Economic Forum’s 2025 Global Risks Report, and the UN’s World Social Report 2025, the Global North remains unwilling to support urgently needed reforms. In response, global civil society – having linked debt and austerity to the rise of authoritarianism in the Global South – continues to demand a new Eco-Social Contract, an end to austerity, and for public ownership and management of essential services.
Bank and Fund have long recognised the perils of the unequal system they underpin
In an October 2014 speech, former IMF Managing Director and current European Central Bank President Christine Lagarde called for a new multilateralism, noting that, “too many people feel left out, too many people feel frustrated…[Possibly leading to] serious breakdowns in social and political cohesion.” After Donald Trump’s first election in 2016, the IMF published a blog titled, The buzz of populism and its pull on the economy, stressing the role of inequality in feeding support for populist parties. The IMF’s October 2024 World Economic Outlook dedicated a chapter to “Understanding the social acceptability of structural reforms”.
The World Bank’s Background Paper for the 2011 World Development Report, meanwhile, highlighted the link between horizontal inequality (HI) and conflict, noting, “none of the issues on the leading agenda—notably, poverty reduction, promotion of economic growth and structural adjustment—incorporates consideration of HIs.” More than a decade on, the World Bank’s Annual Conference on Development Economics in July was titled “Development in the age of populism”. In a blog preceding the event, World Bank Chief Economist Indermit Gill stressed that populist discontent can be at least partially explained by the hubris of the policy-making elite, including at the World Bank, given, “the realities encountered by millions globally have deviated markedly from the positive-sum outcomes predicted by theory.”
The threats posed to the global and domestic social contract by economic policies that contribute to inequality and perpetuate an unjust global governance architecture were also identified as a pressing concern by the July 2023 UN Secretary General’s New Agenda for Peace report (see Observer Winter 2023).
Bank and Fund policies continue to contribute to authoritarianism and national populism
Despite increasing research on, and debate about, the erosion of the social contract and its impact on the democratic state, the Bank and Fund continue to fail to address their contribution to both.
A July report by the UN Independent Expert on Debt and Human Rights noted that, “…policies of international financial institutions can worsen inequality, misallocate resources and fuel political unrest.”
The IMF continues to support austerity measures and fails to address the debt crises (see Observer Summer 2025), thus depriving states of resources essential to uphold the social contract. As Tim Kaldas from the Tahir Institute for Middle East Policy stressed, “The IMF’s continued reliance on austerity in the MENA region has consistently and predictably failed to deliver sustainable macroeconomic stabilisation, as cuts eat away at investment rates, labour force participation, and the purchasing power of the population. Meanwhile, the public has to contend with elevated inflation along with cuts to social protection and public services, amplifying their economic hardship while their leaders continue to borrow growing sums that fail to translate into improvements in the population’s quality of life adding to longstanding discontent and a loss of hope for future progress.”
The World Bank, meanwhile, under President Ajay Banga, has redoubled its commitment to private sector-led growth and continued support for targeted social protection, despite concerns raised by civil society (see Observer Summer 2025, Spring 2024, Summer 2023, Winter 2022, Winter 2022). As stressed by Ashar Saleem, Farzad Rafi Khan, and Pablo Martin De Holan in their November 2023 article in journal Organization, the de-risking state on which the Bank’s development model relies requires a strong state that, “has the willingness and the capacity to organize and enforce most aspects of life on the principles of markets and competition, materialized into laws and institutions but also into repression of demands for equality, democratization, and redistributive change.” It is little surprising then that neoliberal policies that have always relied on a strong and active state have led not to the flourishing of the democratic, noninterventionist state, but to its opposite. Tunisia is a case in point, as Professor Erin McCandless reflects upon in her analysis of democratic reversal as the anticipated inclusive outcomes of a new social contract did not materialise following the 2011 Arab Spring revolution.
In a 2016 Social Europe article titled, Populism and the need for a new social contract, Professor Manuel Muñiz of IE University in Madrid underscored the corrosive impact on the social contract of the unequal distribution of productivity growth between capital and labour that has resulted from the Bank and Fund-supported policies.
Similarly, Professor Catherine De Vries of Bocconi University’s Institute for European Policymaking underscored in an April blog that, “The rise of populism was driven…by… a widespread perception that the state had abandoned ordinary citizens and a sentiment that mainstream political parties were complicit.” Contrary to Bank and Fund policies, she called for the revitalisation of, “the social contract by proving that the state can once again be a force for good.”
While much hand-wringing about the rise of populism and authoritarianism continues at the Bretton Woods Institutions, it is evident that its causes are fairly well understood and that the principal constraints to combating threats to democracy and supporting just and environmentally sustainable development remains an unwillingness to undertake urgently needed reform of the international governance and policy architecture, including at the World Bank and IMF.
