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The Fund is back in town

The tough remedies of the IMF won it few friends and, in recent years, countries have found more obl

A year ago I attended an informal briefing in Washington by a senior British policymaker who lamented the passing of the International Monetary Fund as an institution of any worth. Globalisation meant that bankrupt nations no longer needed IMF medicine to cure their ills. Rather, they could obtain all the finance they required from the global banking system without strings attached.

Instead of a nasty IMF able to topple governments - as almost happened in Britain during the sterling crisis of 1976 - the world needed a different kind of international authority: one that was slimmer, cheaper to run, fleeter of foot and able to provide advice on the great global issues of the day, such as the mismatch of exchange rates between the US dollar and the Chinese yuan.

The IMF could no longer rely on the interest rate charges it received on loans to support its operations, as the last of a previous generation of big borrowers, Argentina and Brazil, paid back their debts by the start of 2006, two years ahead of schedule. To stay afloat, the IMF would have to sell off some of its huge gold reserves, paid in by western governments as the Second World War drew to a close. That same year, the governor of the Bank of England, Mervyn King, warned that the Fund was in danger of "slipping into obscurity".

How rapidly things changed. By the spring of 2008 the IMF, under the leadership of the then recently appointed managing director, Dominique Strauss-Kahn, a socialist and former French finance minister, was among the first global organisations to predict doom for the world's banking system. When it suggested the eventual losses from the US sub-prime debacle could reach $1trn, this was airily dismissed by bankers and policymakers as scaremongering. It is now clear that the eventual cost could be at least twice that.

Now, a crisis that began in the more recherché areas of the banking system is spreading far and wide. Countries from Iceland to Pakistan are knocking on the doors of the IMF's fortress-like headquarters in Washington, a few hundred yards from the White House, asking for advice and money. The Fund is back in business.

It is unfortunate, therefore, that just as the IMF is starting to be revitalised by the task of saving global capitalism from itself, it has been bedevilled by allegations concerning the priapic behaviour of its leader. Strauss-Kahn now finds himself under investigation by one of the world's largest law firms (on behalf of the IMF's board) over allegations of an improper relationship with a former member of staff, Piroska Nagy, an economist who worked in the Fund's Africa department. Nagy, a Hungarian national, has since moved on to work for the European Bank for Reconstruction and Development but, according to the Wall Street Journal, may have received "an excessive pay-off" when she left.

The incident will rekindle memories of the departure of Paul Wolfowitz from the World Bank in June 2007, after similar allegations of an affair with a member of staff. In both cases, the complex politics of the Bretton Woods institutions played a part. Wolfowitz was under fire for his neoconservative views and for using the Bank to support regimes he favoured. Strauss-Kahn is being targeted for his advocacy of tight market regulation and his support of Keynesian policies to refloat the global economy.

Irrespective of what the investigators turn up at the IMF (in the Wolfowitz case, a huge dossier of documents eventually emerged), it would be calamitous if Strauss-Kahn were forced to step aside at present.

The IMF's previous boss, Rodrigo Rato, resigned for mysterious "personal reasons" in October 2007, midway through his term of office. This exposed a huge rift over the traditional, undemocratic way in which the leaders of the IMF and World Bank are chosen. His torically, the Europeans - when they eventually agree among themselves - have chosen the managing director of the IMF, while the Americans have chosen the president of the World Bank.

This convention has so far blocked Asian, Russian and Latin American access to these hugely influential jobs.

The last thing the world needs now, with the banking and financial system on the edge of a precipice and the capital markets all but closed down, is a long-drawn-out fight over financial leadership. As we saw in the US Congress, when the Treasury's $700bn bailout of American banking was first rejected, politics plays badly on Wall Street and financial markets around the world. A fight for the soul of the IMF, in the middle of a crisis, could be dangerous.

The flow of capital from the west to emerging market economies is under severe pressure because of the banking catastrophe. Last year, emerging markets received inflows of $900bn from western financial institutions. This year, the figure will be only $56bn, thus starving countries across the world of the money they need to service their debts, to invest and to buy goods on global markets.

Moreover, nations holding large foreign exchange reserves, such as China and the oil-rich Gulf states, are pulling in their horns because of market uncertainty. It is when the flow of capital dries up that the global “lender of last resort”, the IMF, comes into play.

In the 1980s, the IMF was at the forefront of economic reform in Latin America. The arrival of IMF teams with proposals to end food subsidies would often result in rioting on the streets. In the 1990s, the Fund turned its attention to the former Soviet Union and its satellites, unleashing a period of klepto-capitalism.

This time around, Iceland, which has caused so much grief for British local authorities and consumers, is at the front of the queue and will collect $3.5bn in loans. Iceland is a classic case of a country in need. The banks have been nationalised. The currency, the krona, has fallen 18 per cent since March, and interest rates have been raised to 15 per cent with little noticeable effect.

But what is true of Iceland is typical of many nations around the world that have been able to live beyond their means because of the explosion in free capital flows. No one has worried about running a balance-of-payments deficit, because the assumption has always been that there will be a bank or foreign investment fund willing to meet the difference.

The year 2008 is starting to feel like 1996-97, when the Asian economies were under siege and suffered a precipitous drop in living standards.

Eastern European economies led by Hungary and Ukraine are struggling to remain solvent. South Korea, having had a run on its currency, has made a desperate call to Washington. Tur key, a perennial IMF client, is back in trouble. And Pakistan, up to its neck in debt and political unrest, also needs a bailout.

It could all become much worse, and developing nations are likely to be the victims hardest hit. One of the features of a slump is falling prices for primary goods and commodities. Just since July, commodity prices have fallen 37 per cent, cutting off a huge source of income for growers and people working in the mining industry. With western banks in disarray, there is little possibility that private capital flows will fill the vacuum. The only choice countries will have is to borrow from the IMF, whose money does not come cheap. And its loan fees come with austerity packages attached.

Strauss-Kahn may plead the Keynesian case to save the world from depression, but the IMF economists have been trained on a diet of balanced budgets, an end to subsidy, and privatisation. The result can be politically disruptive and socially divisive. The Fund is back and there is no reason to believe that it will be any more accommodating than in the past. That is not its way.

Alex Brummer is City editor of the Daily Mail

This article first appeared in the 27 October 2008 issue of the New Statesman, The death of Gucci capitalism

Photo: Getty Images
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No, IDS, welfare isn't a path to wealth. Quite the opposite, in fact

Far from being a lifestyle choice, welfare is all too often a struggle for survival.

Iain Duncan Smith really is the gift that keeps on giving. You get one bile-filled giftbag of small-minded, hypocritical nastiness and, just when you think it has no more pain to inflict, off comes another ghastly layer of wrapping paper and out oozes some more. He is a game of Pass the Parcel for people who hate humanity.
For reasons beyond current understanding, the Conservative party not only let him have his own department but set him loose on a stage at their conference, despite the fact that there was both a microphone and an audience and that people might hear and report on what he was going to say. It’s almost like they don’t care that the man in charge of the benefits system displays a fundamental - and, dare I say, deliberate - misunderstanding of what that system is for.
IDS took to the stage to tell the disabled people of Britain - or as he likes to think of us, the not “normal” people of Britain -  “We won’t lift you out of poverty by simply transferring taxpayers’ money to you. With our help, you’ll work your way out of poverty.” It really is fascinating that he was allowed to make such an important speech on Opposite Day.
Iain Duncan Smith is a man possessed by the concept of work. That’s why he put in so many hours and Universal Credit was such a roaring success. Work, when available and suitable and accessible, is a wonderful thing, but for those unable to access it, the welfare system is a crucial safety net that keeps them from becoming totally impoverished.
Benefits absolutely should be the route out of poverty. They are the essential buffer between people and penury. Iain Duncan Smith speaks as though there is a weekly rollover on them, building and building until claimants can skip into the kind of mansion he lives in. They are not that. They are a small stipend to keep body and soul together.
Benefits shouldn’t be a route to wealth and DWP cuts have ensured that, but the notion that we should leave people in poverty astounds me. The people who rely on benefits don’t see it as a quick buck, an easy income. We cannot be the kind of society who is content to leave people destitute because they are unable to work, through long-term illness or short-term job-seeking. Without benefits, people are literally starving. People don’t go to food banks because Waitrose are out of asparagus. They go because the government has snipped away at their benefits until they have become too poor to feed themselves.
The utter hypocrisy of telling disabled people to work themselves out of poverty while cutting Access to Work is so audacious as to be almost impressive. IDS suggests that suitable jobs for disabled workers are constantly popping out of the ground like daisies, despite the fact that his own government closed 36 Remploy factories. If he wants people to work their way out of poverty, he has make it very easy to find that work.
His speech was riddled with odious little snippets digging at those who rely on his department. No one is “simply transferring taxpayers’ money” to claimants, as though every Friday he sits down with his card reader to do some online banking, sneaking into people’s accounts and spiriting their cash away to the scrounging masses. Anyone who has come within ten feet of claiming benefits knows it is far from a simple process.
He is incredulous that if a doctor says you are too sick to work, you get signed off work, as though doctors are untrained apes that somehow gained access to a pen. This is only the latest absurd episode in DWP’s ongoing deep mistrust of the medical profession, whose knowledge of their own patients is often ignored in favour of a brief assessment by an outside agency. IDS implies it is yes-no question that GPs ask; you’re either well enough to work or signed off indefinitely to leech from the state. This is simply not true. GPs can recommend their patients for differing approaches for remaining in work, be it a phased return or adapted circumstances and they do tend to have the advantage over the DWP’s agency of having actually met their patient before.
I have read enough stories of the callous ineptitude of sanctions and cuts starving the people we are meant to be protecting. A robust welfare system is the sign of a society that cares for those in need. We need to provide accessible, suitable jobs for those who can work and accessible, suitable benefits for those who can’t. That truly would be a gift that keeps giving.
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What Jeremy Corbyn can learn from Orwell

Corbyn’s ideas may echo George Orwell’s – but they’d need Orwell’s Britain to work. It’s time Corbyn accepted the British as they are today.

All Labour Party leaderships since 1900 have offered themselves as “new”, but Tony Blair’s succession in 1994 triggered a break with the past so ruthless that the Labour leadership virtually declared war on the party. Now it is party members’ turn and they, for now at any rate, think that real Labour is Jeremy.

To Keir Hardie, real Labour had been a trade union lobby expounding Fellowship. To the Webbs, real Labour was “common ownership” by the best means available. Sidney’s Clause Four (adopted 1918) left open what that might be. In the 1920s, the Christian Socialist R H Tawney stitched Equality into the banner, but during the Depression young intellectuals such as Evan Durbin and Hugh Gaitskell designated Planning as Labour’s modern mission. After the Second World War, Clement Attlee followed the miners (and the London Passenger Transport Board) into Nationalisation. Harold Wilson tried to inject Science and Technology into the mix but everything after that was an attempt to move Labour away from state-regulated markets and in the direction of market-regulated states.

What made the recent leadership contest so alarming was how broken was the intellectual tradition. None of the candidates made anything of a long history of thinking about the relationship between socialism and what the people want. Yvette Cooper wanted to go over the numbers; only they were the wrong numbers. Andy Burnham twisted and turned. Liz Kendall based her bid on two words: “Have me.” Only Jeremy Corbyn seemed to have any kind of Labour narrative to tell and, of course, ever the ­rebel, he was not responsible for any of it. His conference address in Brighton was little more than the notes of a street-corner campaigner to a small crowd.

Given the paucity of thinking, and this being an English party for now, it is only a matter of time before George Orwell is brought in to see how Jeremy measures up. In fact, it’s happened already. Rafael Behr in the Guardian and Nick Cohen in the Spectator both see him as the kind of hard-left intellectual Orwell dreaded, while Charles Cooke in the National Review and Jason Cowley in the New Statesman joined unlikely fashion forces to take a side-look at Jeremy’s dreadful dress sense – to Orwell, a sure sign of a socialist. Cooke thought he looked like a “burned-out geography teacher at a third-rate comprehensive”. Cowley thought he looked like a red-brick university sociology lecturer circa 1978. Fair enough. He does. But there is more. Being a middle-class teetotal vegetarian bicycling socialistic feministic atheistic metropolitan anti-racist republican nice guy, with allotment and “squashily pacifist” leanings to match, clearly puts him in the land of the cranks as described by Orwell in The Road to Wigan Pier (1937) – one of “that dreary tribe of high-minded women and sandal-wearers and bearded fruit-juice drinkers who come flocking towards the smell of ‘progress’ like bluebottles to a dead cat”. And though Corbyn, as “a fully fledged, fully bearded, unabashed socialist” (Huffington Post), might make all true Orwellians twitch, he really made their day when he refused to sing the National Anthem. Orwell cited precisely that (see “The Lion and the Unicorn”, 1941) as an example of the distance between left-wing intellectuals and the people. It seemed that, by standing there, mouth shut, Comrade Corbyn didn’t just cut his wrists, he lay down full length in the coffin and pulled the lid shut.


Trouble is, this line of attack not only misrepresents the Labour leader, it misrepresents Orwell. For the great man was not as unflinchingly straight and true as some people think. It is impossible, for instance, to think of Orwell singing “God Save the King”, because he, too, was one of that “dreary tribe” of London lefties, and even when he joined Labour he remained ever the rebel. As for Corbyn, for a start, he is not badly dressed. He just doesn’t look like Chuka or Tristram. He may look like a threadbare schoolteacher, but Orwell was one twice over. Orwell was never a vegetarian or a teetotaller, but, like Corbyn, neither was he interested in fancy food (or drink), he kept an allotment, drove a motorbike, bicycled, cared about the poor, cared about the environment, loathed the empire, came close to pacifism at one point, and opposed war with Germany well past the time when it was reasonable to do so.

In Orwell’s thinking about socialism, for too long his main reference point was the London Marxist left. Not only did he make speeches in favour of revolutions, he took part in one with a gun in his hand. Orwell was far more interested, as Corbyn has been far more interested, in speaking truth to power than in holding office. His loyalty was to the movement, or at least the idea of the movement, not to MPs or the front bench, which he rarely mentioned. There is nothing in Corbyn’s position that would have shocked Orwell and, should they have met, there’d have been much to talk about: belief in public ownership and non-economic values, confidence in the state’s ability to make life better, progressive taxation, national health, state education, social care, anti-socially useless banking, anti-colonialism and a whole lot of other anti-isms besides. It’s hard to be sure what Orwell’s position would have been on Trident and immigration. Not Corbyn’s, I suspect. He was not as alert to feminism as he might have been but equally, few men try to write novels from a woman’s point of view and all Orwellians recognise that Julia is the dark hero of Nineteen Eighty-Four. In truth they are both austere types, not in it for themselves and not on anyone else’s expense account either. Corbyn won the leadership because this shone through from the very beginning. He came across as unaffected and straightforward – much as Orwell tried to be in his writing.

Except, as powerfully expressed in these pages by John Gray, Corbyn’s politics were made for another world. What sort of world would he need? First off, he’d need a regulated labour market: regulated by the state in partnership with a labour movement sensitive to what people wanted and experienced in trying to provide it. He would also need capital controls, a manufacturing base capable of building the new investment with Keynesian payback, an efficient and motivated Inland Revenue, a widespread public-service ethos that sees the country as an asset, not a market, and an overwhelming democratic mandate to get things done. In other words, Corbyn needs Orwell’s Britain – not this one – and at the very least, if he can’t have that, he needs the freedom to act that the European Commission forbids.

There’s another problem. Orwell did not trust left-wing intellectuals and spent half his life trying to work out their motivations as a class who spoke for the people, went in search of the people, and praised the people, but did not know them or believe in them. True, Corbyn says he wants to be open and inclusive, but we know he can’t possibly mean it when he says it will be the party, not him or the PLP, that will decide policy, just as we knew it couldn’t possibly be true when he said he’d turn PMQs into the People’s Question Time. Jeremy hasn’t changed his mind in forty years, appears to have great difficulty (unlike Tony Benn) in fusing socialism to national identity or experience (Hardie, Ben Okri and Maya Angelou were bolted on to his Brighton speech) and seems to think that not being happy with what you are given somehow captures the historic essence of socialism (rather than its opposite).

Granted, not thinking outside the ­circle is an inherent fault of the sectarian left but some of our most prominent left-wing journalists have it, too. Working-class support for nationalisation? Good. Right answer! Working-class opposition to benefit scroungers and further mass immigration? Bad. Wrong answer! Would you like to try again? In his essay “In Defence of Comrade Zilliacus” (1947) Orwell reckoned that left-wing intellectuals saw only what they wanted to see. For all their talk of representing the people, they hated the masses. “What they are frightened of is the prevailing opinion within their own group . . . there is always an orthodoxy, a parrot-cry . . .”

The game is hard and he may go down in a welter of knives, yet Corbyn still has time. He may go on making the same speech – on the benefits of apple pie to apple growers – but at some point he will have to drop the wish-list and get on the side of the British people as they are, and live with that, and build into it. Only the nation state can even begin to do the things he wants to do. The quicker he gets that, the quicker we can see if the latest incarnation of new Labour has a future.

Robert Colls is the author of “George Orwell: English Rebel” (Oxford University Press)

This article first appeared in the 08 October 2015 issue of the New Statesman, Putin vs Isis