Christine Lagarde, Head of the IMF, has issued a not-so-coded warning to George Osborne that his austerity policies are damaging the UK economy and reducing growth prospects. Given the discussion I had with a bunch of final year Undergraduates yesterday, in our class on global economic governance, I thought a few comments were worthwhile.
First, in my mission to improve understanding about the way international organisations work, among their many student critics, I was making the point that the IMF is not so omnipotent as critical students often think. It can’t do that much to force a government down a particular path, unless that is the government in question wants cash, and even then the IMF has frequently been frustrated at the ‘fungibility’ (I’ll explain below) of the promises that they secure. In this instance, as Larry Elliott notes, the UK is not in balance of payments trouble, does not need IMF support, and therefore can just ignore the advice offered when IMF officials visit in the near future to view the British economy, as the charter of the IMF mandates. This is different to the case that I talked about in class yesterday of 1976 when the Labour government of the time began the work of Thatcherism before Thatcher (if Thatcherism is to be ‘credited’ as it has been this week, then let’s get it straight – she was opportunist rather than ‘towering’ – but another post is on its way about that). Back then some argued that the UK did need IMF support (not all – see Tony Benn on that) and in response for that help the IMF encouraged the UK government to begin its neo-liberal revolution.
But even when the IMF provides assistance, it doesn’t always get what it wants. There has been much gnashing of teeth in the past because governments in the developing world haven’t always done what they promised to do in return for IMF support. This is the fungibility I referred to above. Alongside vociferous protests from left-wing activists that conditionality was essentially imperialistic, this what was behind the much trumpeted decision in the early 2000s to end conditionality and replace it with ‘selectivity’. This is the policy of only providing support in ‘tranches’ and after governments have already demonstrated their commitment to the recommended reform agenda. For those Global Governance students still reading (!) this occurred alongside the shift to what we now call the ‘Post-Washington Consensus’ and will be the subject of next week’s class.
There was a third point I wanted to make about this news and that relates to advisability of austerity policies themselves. After discussions with some good friends (Greig Charnock, Stuart Shields, Hugo Radice, Werner Bonefield, Huw Mcartney, Hilary Wainwright among them) at meeting of the Transpennine Group in 2010 I drafted a piece for Red Pepper that summarised some of our concerns about the way in which austerity was being justified and the substance of the plans themselves. We warned that the case for austerity relied on highly questionable propositions and ran the real danger of choking off growth. Lagarde and the IMF seem to be suggesting that we were right. To read what we said in 2010: