By John C. Dyer, UK correspondent
Thin boundaries lie between expert opinion from an independent body - public policy lobbying under the guise of a think-tank - and the deliberate entry of an allegedly independent organization into a partisan debate on one side of the debate. Some push and pull at the edge of those boundaries is forgivable. But on 6 May 2011, the International Monetary Fund's spokesmen crossed the line significantly, raising questions concerning the IMF's objectivity and purpose.
During a press conference arranged to report the IMF's latest review of the UK economy, the IMF's spokesperson offered an opinion on the public policy debate of the day in the UK. Speaking for the IMF, he opined that UK Coalition fiscal policy should not be changed despite failures to reach predicted growth. The spokesman then directly addressed contrary views expressed by dissenting economists, unions and the Labour Party, acknowledging those views before rejecting them.
The IMF admitted that the UK economy's performance this past year has been disappointingly flatter than the IMF estimated just last year. But the IMF reasoned it was a temporary blip caused by unanticipated fluctuations in commodities.
What happens if . . . ?
Upon questioning from the press, the IMF spokesman allowed (seemingly begrudgingly) that the Fund might wish to rethink its position if UK growth did not rebound in 2012 to achieve last year's target. But, significantly, the IMF also argued the indicated consequences of such a revision would not be the so-called “Plan B” (less austerity, more public investment) called for by the Labour Party, its shadow Chancellor and its leader, as well as the UK Trade Unions, and leading “left of center” economists. Rather, the IMF argued it would be a “Plan C”- quantitative easing and lowered tax rates.
Just the weekend prior, many of the UK's leading “left of center” economists sent an open letter to The Observer and The Guardian, advising UK Chancellor George Osborne to devise a “Plan B.” Plan B would include slowing the pace and severity of public cuts and increasing public investment in the economy. They alleged that the Coalition's austerity programme is damaging an already fragile economy. They pointed out that the UK economy has been flat for six months and that at current rates of growth the deficit plan would fail regardless because insufficient taxes would be raised. Among the economists signing the letter were some who had prominently endorsed the Chancellor's programme when he announced it last year.
The IMF expressly rejected these economists' points.
The timing of the IMF's defense of the Coalition's strategy was fortuitous for George Osborne, Chancellor of the Exchequer. It has been a bad two weeks, capping a bad six months in which the public has been confronted with a steady diet of bad news and growing unwillingness among the media and public to let the Coalition's spin slide without comment.
UK Job Growth - all private sector - happened before the Coalition's “rebalancing”
The Press Conference did not improve the mood in the UK or quell the criticisms. Off-hand comments from a BBC presenter immediately following the press conference made clear her skepticism. The respected Faisal Islam, reporting for Channel 4, focused attention on the Chancellor's assertions (echoed by the IMF's) that the UK economy added 400,000 jobs this year, all private sector. Islam pointed out that over 300,000 of these jobs came the first half of the year, before the Coalition's “rebalancing” of the economy had gone into effect.
A BBC analyst, speaking shortly after the Press Conference, questioned whether the IMF's anticipated rate of economic growth for the UK - even if realized - would support the government's deficit reduction plan. He also pointed out that the projection was higher than independent projections from within the UK. In replies or analyzes carried on BBC, leading left of center economists associated with Sunday's open letter to the Observer and the Guardian, as well as a “free enterprise” economist, and businessmen all echoed these concerns.
The dominance of "neo-liberalism" in IMF policy is interesting in light of debate among economists concerning the onset and handling of the Great Depression of the 1930's. Neo-liberalism is certainly not reflective of a cross section of today’s economists. There are a number who argue that classical economics, which one could argue neo-liberalism only repackages, contributed to the severity of the Great Depression with any number of inadequate responses.
They caution that those inadequate responses postponed the worst of the Great Depression for three years from the stock market crash, but they eventually ran out of steam, leaving the then world order bereft of resources and in so weakened a position it could not stave off the worst.
Pointed is the IMF rejection of those Keynsian/Institutional approaches, which policy makers for decades credited with pulling the world economies out of the Great Depression. While the current debate among three major schools of economics is probably a healthy rebalancing of theoretical approaches, it is curious that the IMF rejects the institutional one for the neo-classical.
I have to wonder if IMF economists do not have nightmares concerning the listlessness of the US and UK economies as well as the implosions of those in Southern Europe, fearing privately that we are seeing history repeating itself. I also question whether the Fund has adequately considered the basis for the neo-liberal mandate following World War II. The circumstances following World War II differ from those of the crisis flaring in 2008. The difference is, while the destruction of the previous economic order during the war had opened the door wide for development in the post war era, in 2008 an established order which the IMF represents sought to hold on to what it had in the face of a speculative bubble collapsing in the new globalized economic competition.
Questions begging answers
Whoever is correct about the economics, the politics of the Press Conference were wrong. Huge questions beg serious answers. What is the IMF doing entering the UK public policy debate? Why is the IMF contradicting one side and supporting the other?
The IMF was created by 29 member nations to stabilize exchange rates and the world's economy after WWII as well as to provide loans to developing countries. Over time the IMF focused its efforts on the developing world, expanding to its current 187 member nations, consistent with a key charter function. Among the charter functions the IMF was to encourage world development through the “liberalizing“ of developing countries. Its guiding philosophy in that task has been neo-liberalism.
Europe and the United Kingdom, however, are not the developing world. Events have returned the IMF to stabilization in the developed world following the mortgage bubble's burst. The IMF has shifted to broker financing for European partners reeling from the simultaneous Sovereign Debt crisis. In this task the IMF followed its model for dealing with developing countries, most famously (or infamously depending on perspective) Argentina. As a condition for receiving these loan packages, the IMF has required austerity programmes amounting to severe cuts to national deficits coupled with privatization of public services.
But the IMF has not brokered credit to the UK as it is doing with Greece, Ireland, Spain, and Portugal. In the UK, The Coalition has imposed this programme on the country itself as a political decision.
The IMF's talking points written by Downing Street?
It has been alleged, based on statements made at the Press Conference, that the IMF shared what its team was going to say with the Chancellor prior to saying it. As one BBC reporter wryly noted, the IMF's comments could have been written by Downing Street. No doubt this was an auditor's courtesy rather than collusion to decide talking points. But the Chancellor, the day before the IMF press conference, appeared on BBC obviously preparing the way. The Chancellor capitalized on the courtesy - assuming it happened - contributing to the impression of collusion.
An American acted as chief IMF spokesperson at the Press Conference. The USA has 65% of the vote in IMF governance. It may be I am hyper-conscious of this as an American, but it struck me that it gave the findings an American “halo.”
These facts intensify for me the implications of the skepticism concerning what the IMF team was doing with this press conference in light of the US's approach to its own deficit and economy. As pointed out in my prior retrospective on the President's speech, the approaches of the US and the UK differ markedly. The US approach is closer to the IMF's “Plan C.” Both approaches are consistent with Neo Liberalism but neither is consistent with the UK's more social democratic postwar history.
On Saturday, 4 June, 2010, economists in the US questioned the effectiveness of the US programme of “quantitative easing.” They pointed out that the American economy has flattened in the past six months and that future indicators do not look good.
The IMF on the other hand has projected that the current malaise is a temporary blip caused by the same forces causing similar lack of growth elsewhere in the developed world. Yet the IMF's explanation fails to explain why Germany has not suffered the same blip at the same time although subject to the same fluctuations in commodities. The point is, projections offered by bodies independent of neo liberal sources are decidedly less clear on the efficacy of alternatives than the IMF is.
What would work for the UK?
Yet the IMF argues that quantitative easing and tax breaks - not the public investment that the Labour Party and left of center economists support - is the only alternative to the Coalition policy, AND only if in a year the IMF's assessment of the UK economy's potential growth is proved wrong. Such monetary tools are consistent with the IMF's historical approach in the developing world.
But this approach has been sharply criticized as too narrow and too focused on the interests of banks and not the people who must support those policies. Critics point out that the IMF's narrow approach has been associated with increased poverty in nations compelled to follow its austerity programming.
The IMF's role in managing the European side of the world's economic crisis has already played into centrifugal forces seeking to erode - or are already eroding - the European Union.
The European Plan has sparked protests across Southern Europe
The IMF's so-called European Plan of austerity and privatization of public services has sparked mass protests across Southern Europe. Some protests are following the largely non-violent Arab Spring model in Tunisia and Egypt, as in Spain. Others have turned violent, as in Greece. Forces in Greece and Portugal assert the IMF is deliberately seeking to cripple national sovereignty. Icelanders recently rejected repayment of an asserted obligation to the UK and the Dutch. Anarchists have run riot on the streets of London as they do in Greece. The Irish, like the Greeks, want to restructure their bailout, asserting that they cannot meet repayment targets while imposing the required austerity measures.
Responding to reporters at the Press Conference, IMF spokesmen flatly rejected reports that the IMF would agree to restructure Greek debt. Even if technically correct, the pain and the heavy-handed imposition of the European Plan are destabilizing and fracturing the countries subject to it as well as Europe as a whole.
The future and value of the European Union has been increasingly the object of challenge in the UK.
Euroskeptics still “retrogads”?
UK “Euroskeptics” in the past packaged objections to the UK involvement in the European Union under the heading “Sovereignty.” The Euroskeptics argued one size does not fit all, but that the Union would follow a one size fits all policy. Furthermore they argued that the EU would work against UK national interests. Great debates followed over currency and control. But throughout the past 13 years, Europskeptics were treated as retrogads (I combined here “retrograde” and “gadfly”).
As of Saturday, 4 June, 2011, Europskepticism seems to have found a new “market” among social liberals in the UK and elsewhere upset with austerity programmes, the G8/G20, and the European Central Bank. Although these are three separate organizations, the UK public, Members of Parliament and even the IMF spokesman smush them together.
On Saturday, June 4, 2011 a panel of “experts” on BBC were themselves surprised to all agree that the so-called “European Plan” may well validate Euroskepticism and the current crisis herald the beginning of the European Union's end.
A Portuguese nationalist commentator and a British Conservative Euroskeptic both congratulated each other on their perceptiveness, although each had different motivations. The motivator for the former was rejection of the Euro Plan's insistence on privatization and austerity measures. The motivator for the latter was political dominance. Both used the term “sovereignty” to package their arguments.
“Spinning into Reverse”
On the same day, The Guardian published an editorial, “Spinning Into Reverse.” The editorial cited Marquand's recent book, The End of the West. The upshot of the editorial was that it was time to give the European Union political credibility through direct elections or watch it fail.
The BBC discussion seems to suggest that in some way the structure of the global economy and technology can be reversed. The structure and interplay between the challenges and opportunities of the global marketplace are already well described by Robert Reich in his book, Supercapitalism. I won't rehash it here except to say that the idea that any of us can ignore the Global Marketplace is a little like a child covering his eyes and saying, “you can't see me.” The horse of interlaced destinies left the barn long ago.
I sympathize with the concerns of the Portuguese, the Spanish, the Greeks, the Irish, and the Icelanders, all of whom have rebelled against the European Plan. But the failings of this particular plan do not vindicate Europskepticism.
Taking sides in an internal UK political debate is counter-productive
That noted, the IMF decision to weigh into the UK public policy debate hardly enhances the Fund's credentials as a neutral observer. The IMF could have said at its press conference that it was not going to be drawn into backing one policy against another. It didn't. Instead, it supported one policy (and one side of the aisle) in no uncertain terms. At a time when the West needs objective assessment and advice, the IMF has called those credentials into question. This time the controversy is not confined to the economy of a developing country recently emerging from authoritarian control (as in Argentina) but it cuts across the developed West and may soon engulf the United States.
Wait a Minute: The IMF is not the G-20
The IMF's spokesperson also described the views he presented as those of the G-20. But the G-20 is a political body tightly managed by its national representatives. No one elected them independently to govern Europe or the UK. No one elected the IMF to do so either. Encouragement of liberalization in developing economies is not commanding liberalization in developed nations with established democracies, nor should IMF staff speak on behalf of 187 member states and tell the electorate of a nation not receiving an IMF loan that one political party has it right while the other has it wrong.
One must ask, to whom are either the G-20 or IMF publicly accountable? Why is the policy thrust so different for different members of the G-20 that find themselves in similar or even worse economic circumstances? What is the Agenda and who is setting it?
A stable UK and Europe imperative
At the end of the day, everyone needs a stable UK and Southern Europe. Everyone needs well thought through transnational responses to transnational issues. Southern Europe and the UK may well need to “rebalance” their economies. But, the West cannot afford for critical institutions to be perceived as dancing to the tune of (an) unseen and unaccountable maestro(s). The IMF is in danger of moving from credible, independent economist, expert advisor and broker to discountable public advocate of a political agenda contrary to the structure and policies embraced by the citizens of established democracies with developed economies.