IMF’s Concern with Equality Not Reflected in Its Policy Recommendations
Recently the IMF’s analyses have shown greater concern about the dramatic rise in inequality, but its policy recommendations make the problem worse, explains economist Mark Weisbrot of CEPR
SHARMINI PERIES: It’s The Real News Network. I’m Sharmini Peries coming to you from Baltimore.
The International Monetary Fund released its biannual 300 page World Economic Outlook last week. Overall the outlook presents a fairly optimistic picture in the short term for the global economy. However, in the medium term to long term, it is concerned about increasing inequality, environmental degradation, and a growing backlash against globalization.
Joining me to analyze the IMF’s World Economic Outlook is Mark Weisbrot. Mark is the Co-Director of the Center for Economic and Policy Research and is the author of Failed: What Experts Got Wrong About the Global Economy. He joins us today from Washington. Thanks for coming on The Real News, Mark.
MARK WEISBROT: Thanks, Sharmini. Thanks for having me.
SHARMINI PERIES: Mark, the IMF and I should say also, the World Bank, wrapped up their annual fall meetings last Sunday with gatherings of finance ministers, powerful central bankers and economists. When we mentioned IMF or the World Bank to most people their eyes glaze over. Why should we care about their meeting, and why are these meetings so significant for all of us?
MARK WEISBROT: Well, the IMF is really the most powerful financial institution in the world in many ways. It has an enormous influence on policy. Even in Europe where it’s really the European directors that make the main decisions. They’re still the brain trust for the austerity that you’ve seen in Europe for a lot of policies that affect developing countries. And so, you have right now, a recognition that the global economy and globalization hasn’t worked too well in some of the high income countries. United States, in UK there was Brexit, of course, in the Eurozone there’s been a lot of problems.
But a lot of people defend it. A lot of people defend the globalization that’s designed here in Washington as something that really helps the poor, the majority of people in the world. And so here’s the IMF and the World Bank. They’re the main ones that have this influence. They have real power too, because in a lot of countries if you don’t get agreement with the IMF, you won’t get loans from the World Bank or from regional banks, or sometimes even the private sector.
So this is real power. It’s very concentrated here in Washington. And it’s part of a neo-colonial system where the rich countries, which control these institutions, really, even though the IMF has 189 members, it’s really just the US and its rich country allies that make the decisions. And they don’t necessarily make them in the interest of developing countries.
SHARMINI PERIES: Now when you look at the IMF documents and they say wonderful things, for example, they say, “We reinforce our commitment to achieve strong sustainable balance, inclusive and job rich growth. And to this end we will use all policy tools, monetary and fiscal policies, and structural reforms both individually and collectively.” Now, these are all great, feel-good sentiments are reported. Dimitri Lascaris is actually in Greece taking a look at the impact IMF policies has had on Greece and the ordinary people through austerities and things that they’re forcing the government to do. Sell off their utility companies and anything that our national assets are being asked to be sold off so that the loans given to them by the IMF and the Troika could be paid off.
Give us a sense of what all this talk is in theory and in practice.
MARK WEISBROT: Well, the IMF is changing some in its research department. That’s where you see the changes in theory. You do see a lot of these acknowledgements in the latest World Economic Outlook that there’s too much inequality. Even that there’s a need for governments to spend money. That is expansionary fiscal policy, that governments should spend money in order to reduce unemployment.
But when it comes down to it, if you look at their actual policy, that has not changed much at all. And you mentioned Europe. You can look at the papers … Every country that’s a member of the IMF has to do a paper about once a year jointly with the IMF and that shows what the consensus is on policy. If you look at France, the IMF is supporting these so-called labor law reforms that reduce the bargaining power of unions even though they say they care about inequality. And they are helping to push for France to have more austerity. To reduce their spending and tighten their budget even though unemployment is 9.5%.
If you look at Spain, for example again, just the IMF’s own papers jointly with the Right Wing government, you see again, these agreements. You see unemployment is at 18%. It’s supposed to go down to 16% in about a year and a half. But that’s basically as far as it goes and the IMF is redefining this as full employment for Spain. That’s one of the reasons you have so much unrest in Spain right now is the economy’s doing so badly. But here’s the IMF saying it really can’t do much better. The IMF is still the same IMF.
The places where there is some positive change, of course, is on monetary policy. And that’s because the two most important central banks in the world, the Federal Reserve and the European Central Bank have both changed their monetary policy over the last decade in very positive directions. That is in directions that do promote more employment at very low interest rates. Quantitative easing, which I’m sure you’ve talked about on this show. Those things are a positive change, and that came from these powerful central banks. And the IMF is okay with that up to a point. They still support, at least tacitly, the Federal Reserve raising interest rates here, which of course is going to keep a lot of people from getting jobs and is probably the greatest threat to our economy here in the United States.
SHARMINI PERIES: Mark, one of the things that there’s been a lot of talk about is the issue, and I guess the theory and the practice of globalization which most left economist, or progressive economists, I should say, critique. But people around the World Bank and the IMF claims that globalization is a great success. At least for the majority of the people in developing countries, they say. What are their arguments in favor of globalization, and does it hold up in terms of evidence?
MARK WEISBROT: We looked at this recently in one of our papers and you have these statements from politicians as well, President Obama in his last speech at the United Nations said that over the last 25 years, the number of people living in extreme poverty has been cut from nearly 40% of the world to under 10%. Now that’s World Bank statistic and there’s a lot of dispute over that. But even taking it at face value, if you actually look at what happened since 1990, two-thirds of that extreme poverty reduction was in China. And if you go back a little further from 1981 to 2010, 94% of that net reduction in people living below the extreme poverty line was in China. And even the part that wasn’t in China, a lot of that was the result of China’s growth and importing. Increased imports from developing countries and increased investment as China became the largest economy in the world.
Chinese globalization’s done very well. China’s income per person has multiplied 21 times since 1980. The fastest economic growth in history. But if you look at what they did, most of it’s the opposite of what these Washington institutions and what even President Obama was describing as globalization in his speech. They had foreign investment, but they controlled it. And they still have it. They control it to fit with their own development plans. They have technology transfer as much as they can get. They have performance requirement. Require foreign investing firms to do certain things that promote local management skills and things like that. Export promotion. They have a mostly state controlled financial system for most of this period, and still quite a bit today. Their central bank isn’t independent, which is one of the main thing Washington pushes.
This is the kind of globalization they had, and the rest of the developing world is very different. You have this indiscriminate opening to international trade and capital flows. You have the central bank being independent of the government so it’s not really a subject of public control. It’s more the response of the financial sector. They got rid of these industrial and developing policies that used to be successful, and were successful in China. And all this other financial deregulation and other deregulation. And if you look at what happened in these last 25 years in the vast majority of developing countries outside of China, the ones that did the kind of globalization that President Obama and all these officials at the IMF and the World Bank are talking about and calling a success, and the media usually calls a success, they did very badly overall.
In the ’80s and ’90s they had a terrible economic failure and they really didn’t recover until the 21st Century when a lot of what had happened was China helped pull them out. And then their policy’s also changed as the IMF lost most of its influence in the middle income countries. There really isn’t much evidence that globalization has been a success for the vast majority of developing countries.
SHARMINI PERIES: Now, I have a very specific question for you. Mark, if you were Christine Lagarde, and Head of the IMF, and I know IMF and the World Bank has different ways and approaches and mandates, but what developments would you introduce to contribute to economic growth in the short term? How would you guide the global economy? And what are the developments that will contribute to addressing the problems of inequality in the world from your perspective?
MARK WEISBROT: Well, those are two really big things. I guess the short answer is to first allow for the things that the IMF says in the IMF research departments are often necessary, which is to have expansionary fiscal policy. To have the government invest in infrastructure that’s necessary even in the rich countries to support their commitments that they’ve made to reduce climate destruction, for example. We need infrastructure investment in energy and transportation and so on. This is something that progressive candidates in Europe have supported in parties. They get pushback from the European authorities and the IMF.
In the rich countries, I think that’s the main, especially in Europe where you have still very high unemployment, I think that’s really needed. And of course, if you promote more employment, you reduce inequality. In the US, I think the main threat going forward, as mentioned, was the Federal Reserve. They raise interest rates, all the recessions in the US since World War II, except for the last two, were actually caused by the Federal Reserve raising interest rates. So that’s a big threat to us here.
And of course, most developing countries, they need more the kinds of policies that were successful in the past, and that China used successfully in the more recent past, which includes real development planning, real industrial policy. And again, getting away from the kinds of unnecessary austerity that the IMF has too often recommended that prevent them from growing, or sometimes even push the economies into recession.
SHARMINI PERIES: Mark, I thank you so much for joining us today and for your insights.
MARK WEISBROT: Thank you.
SHARMINI PERIES: And thank you for joining us, here on The Real News Network.