George Osborne says he has backing to lead IMF

26th July 2019 / Global

If careering towards a no-deal Brexit or rolling out the red carpet to President Trump wasn’t embarrassing enough for the UK, our former Chancellor, George Osborne, has thrown his hat into the ring to succeed Christine Lagarde as the next Managing Director of the International Monetary Fund (IMF). Despite what his supporters may say, Britain’s unrepentant architect of austerity is the wrong person to lead an international institution that is badly in need of reform.

 

Founded in 1944 to prevent another Great Depression, the IMF is out of step with our twenty-first-century world. 75 years on, we face unprecedented global inequality, relentless technological upheaval, creeping authoritarian politics, unaccountable multinationals and a climate emergency fueled by our greedy, extractive market system.

The IMF, along with its fellow post-war institutions the World Bank, the United Nations and the World Trade Organisation, are failing to adapt to challenges they could not anticipate when they were established.

Lagarde’s departure marks an opportunity for the IMF to modernise. But Osborne’s outdated and discredited political and economic ideology of deregulation, minimal state intervention and submission to the financial sector is the last thing developing nations need to manage the existing fallouts of globalisation, let alone the challenges of tomorrow.

SafeSubcribe/Instant Unsubscribe - One Email, Every Sunday Morning - So You Miss Nothing - That's It

 

Osborne has reportedly told friends he’s best placed to win support from the US, UK and China. You might think the job application process would be transparent and merit-based, but candidates have always been selected through a stitch-up to suit America and Europe.

 

The primary purpose of the IMF is to keep the international economy stable as a lender of last resort when countries go bust. If the job was based on merit, is it suited to the Chancellor who from 2010-2016 led Britain through its slowest recovery from a recession since Napoleonic times?

Following the 2008 global crash, Osborne made a series of miscalculations. He thought reducing the deficit through cuts would boost private sector confidence and growth. But to economists like University of Oxford’s Professor Simon Wren-Lewis, implementing austerity in the middle of a downturn “flips conventional macroeconomic logic on its head.”

While millions of pounds were pumped into the financial system through quantitative easing (QE), calls for a supplementary fiscal stimulus to increase investment, employment and incomes were rejected. QE alone wasn’t creating enough additional demand, and this was compounded by government cuts and by people cutting back on expenditure. For the 2.7 million people that were unemployed, there were less public services to fall back on which increased the risk of falling through the cracks.

Wren-Lewis cites the Office for Budget Responsibility, who estimate that austerity took at least 1% off economic growth in 2010-11 and 2011-12. In 2018, Reuters showed that public debt as a share of GDP only began to fall in 2016 and is still more than double its pre-crisis share of economic output.

Rather than u-turn, Osborne continued to overestimate the amount of growth that austerity would generate. He argued that the UK must avoid “becoming like Greece” by bringing public debt under control. But the UK could not end up like Greece – it has its own central bank and can print its own money. After repeatedly missing his target to balance the budget, eventually, Osborne was sacked by the new Conservative Prime Minister Theresa May in 2016, removing Osborne from the spotlight. Or so we thought.

 

The IMF’s secondary purpose is to “facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty.” In Britain, Osborne’s policies allowed wealthy elites to prosper, inequality to fester and instability to grow.

Last year, a comprehensive assessment of UK austerity was published by Professor Philip Alston, UN Special Rapporteur on extreme poverty and human rights following a two week fact-finding mission. While Osborne and Prime Minister Cameron promised the public that “we’re all in this together” Alston found Austerity Britain to be in breach of four UN human rights agreements to women, children, disabled people and economic and social rights, concluding that “policies have taken the highest toll on those least able to bear.”

Alston’s report also highlighted the precarious nature of Britain’s economy, with 2.5 million people on incomes no more than 10% above the poverty line. While Osborne lauded the ‘millions’ of new jobs created, many were insecure ‘zero-hour’ contracts that peaked at around 2.1 million in 2015.

Between 2010-15, poverty soared. The number of food parcels grew from tens of thousands to over one million. In 2013, the Red Cross became involved in food aid in the UK for the first time since the Second World War. Cuts to vital services and a low-wage economy contributed to a homeless crisis. Astonishingly, rough sleeping has increased by 134% since 2010.

According to the Local Government Association, councils have lost 60p in the pound since 2010 due to budget cuts. More than 500 children’s centres closed between 2010-2018. The budgets for Sure Start centres and children’s early help services were slashed despite the increased need. Between 2010-2016 over 340 libraries were closed down.

Is it surprising, given the gutting of public services, that we now have more violent crime in London? Analysis by the All-Party Parliamentary Group on Knife Crime found areas suffering the largest cuts to youth spending have seen bigger increases in knife crime. In the 2016 EU referendum, the impact of austerity created a mood for change in Britain, and many voted to leave because they wanted more money for public services.

 

Alston’s report also confirms that austerity was a choice, not the necessity portrayed at the time. Austerity delayed the recovery and had a devastating social impact. But Osborne managed to convince a passive media and a frightened population his policies were the only way out.

 

Time and time again, phrases like “we’re all in this together” created a false narrative that running an economy was like running a household budget. IPPR Fellow, Grace Blakeley, labels this strategy ‘disaster capitalism’, where politicians take advantage of the public’s vulnerability following an event like the crash to force through extreme politics: “austerity was never about boosting economic growth. Cameron and Osborne used the financial crisis as an opportunity to shrink the state.”

Textbook macroeconomics says that in a recession austerity risks further contracting the economy and deepening the crisis. But this didn’t matter, because Osborne was already winning the argument. He was vindicated when his party won a majority at the 2015 election, while his opponents’ spending plans were attacked for not being ‘tougher on the deficit’.

Today, Britain’s love for austerity has worn off, as living standards have stagnated or declined. Following Labour’s gains in the 2017 election, Tory MPs are now queuing up to say austerity is over. The fact that the party’s leadership contenders have both proposed big tax cuts and spending commitments lays waste to the idea that Osborne was forced to hack away at Britain’s public services.

 

Surely Osborne’s legacy, which has seen Victorian diseases like rickets return to the fifth largest economy in the world, should have no place running an organisation whose main purpose is to help economies in crisis? The IMF, however, is no normal organisation.

 

For decades, the IMF was a bastion of free-market orthodoxy, embracing the ‘Washington Consensus’ that was ushered in by Ronald Reagan and Margaret Thatcher. The IMF’s unflinching worship of the free market contradicted John Maynard Keynes’ founding vision of the institution. In his 2002 book, Globalisation and its Discontents, Joseph Stiglitz, former Chief Economist at the World Bank, details how debt was used as a means of control where desperate countries like South Korea and Indonesia had little choice to accept loans. In return, they surrendered their sovereignty as crippling interest rates and premature capital market liberalisation were forced on them, while basic safety nets and services were slashed.

IMF reforms were deeply unpopular in the countries they were imposed in. In 1999, South Korean unions tried to sue the IMF “to prove the failure of the IMF bailout programme.” In 2015, recounting his battle with the ‘Troika’, former Greek Finance Minister Yanis Varoufakis described its programme as economic warfare, “a coup d’état which used banks instead of tanks.”

Like Osborne, the IMF failed to foresee the social traumas it caused. Its programmes often created unrest, corruption and political instability that was counterintuitive to growth – hitting demand and driving investors away.

 

But recently, the IMF has started to concede that their policies may have worsened crises in East-AsiaArgentina, Greece and Sub-Saharan Africa. They even criticised George Osborne’s austerity policies.

 

The IMF’s next leader must understand its past mistakes and chart a new course that can meet the new challenges of globalisation. As a priority, the IMF must better serve the Global South. The corrupt informal agreement that ensures it is always run by a European and the World Bank by an American must end.

In 2002, Stiglitz argued that the IMF should allow more seats and votes for developing countries so that power is not dominated by historically wealthier countries. He said that there should be more transparency for scrutiny and less room for special interests, and that the IMF should also publish the expected poverty and unemployment impacts of their programs. Years later, many of these are yet to happen, and now we face tougher challenges.

The climate emergency is an unprecedented threat to life on our planet. Dealing with it raises fundamental questions for how the IMF can fairly manage the international economy. Poorer countries in the Global South are disproportionately hit by extreme weather events, and are historically the smallest carbon emitters. There has been much talk of a Green New Deal to mitigate the impact of climate change and adapt to what has already been locked in. But developing countries like China and India – now the largest emitters – have had less time to profit from the cheap dirty fuels that powered the West.

As the Great Depression and World Wars gave rise to the UN and the IMF, today the climate crisis is changing the foundation of our society. Now there needs to be a similar response. The IMF’s next head could call for a new institution like a World Carbon Bank to work alongside the World Bank and IMF. In 2011 Joseph Stiglitz and José Antonio Ocampo called for a ‘Global Economic Coordination Council’ that would replace the informal G20, sitting as an official part of the UN. This proposal is currently being looked at by Labour’s Shadow Chancellor, John McDonnell, who recently pledged any renewable technology made in the UK would be offered for free to developing nations.

Beyond climate change, how will the IMF and other international institutions hold financial, tech and energy firms to account when their wealth rivals that of states? How will they stand up to authoritarian nationalist leaders like Trump and his trade war, and Bolsonaro and his war against the natural environment? How can they respond to the changes that automation will have on labour?

The exploration of new approaches for sustainable development is required to deliver a more just version of globalisation. Along with the Green New Deal, there are opportunities to discuss post-growth economics and the centrality of well-being, as Christine Berry has outlined. French economist Thomas Pikkety has proposed a global wealth tax, while bold ideas like Universal Basic Income, a carbon tax and a Four Day Week are increasingly being discussed.

 

Osborne is not the visionary that our time demands. More a chancer than a Chancellor, he did what was best for his party, not the country. Despite facing a housing crisis, Deputy Prime Minister, Nick Clegg recounts in a meeting with either Osborne or Cameron they did not want to build more social housing because it would “create Labour voters”.

 

When politicians leave Parliament typically they take a thoughtful step back. But revenge spurred on Osborne into his new role as a newspaper editor, when he said he would not rest until Theresa May was “chopped up in bags”. Although he proudly told GQ magazine that his paper would be unashamedly pro-European, last month the paper backed Boris Johnson who is planning to suspend Parliament to ensure a no-deal Brexit.

Osborne’s ambition demonstrates not just his complete lack of self-awareness, but everything that is wrong with politics today. Too often, those who believe they are fit to lead are detached from those they seek to represent.

Our system isn’t working. George Osborne helped create our problems – he cannot be part of the solution.

By Will Murray – openDemocracy

 

 

At a time when reporting the truth is critical, your support is essential in protecting it.
Find out how

The European Financial Review

European financial review Logo

The European Financial Review is the leading financial intelligence magazine read widely by financial experts and the wider business community.