John Pilger's wishful thinking for 2009

The good news for the new year is as follows, month-by-month.

January: Tony Blair is arrested at Heathrow Airport as he returns from yet another foreign speaking engagement (receipts since leaving office: £12m). He is flown to The Hague to stand trial for war crimes for his part in the illegal, unprovoked attack on a defenceless country, Iraq, justified by proven lies, and for the subsequent physical, social and cultural destruction of that country, causing the death of up to a million people. According to the Nuremberg Tribunal, this is the "paramount war crime". The prosecution tells Blair's defence team it will not accept a plea of "sincerely believing". Cherie Blair, a close collaborator who has compared her husband with Winston Churchill, is cautioned.

February: Following the inauguration of Barack Obama as president of the United States, his predecessor, George W Bush, is arrested leaving the Church of the Holy Crusader in his home town of Crawford, Texas. He is flown to The Hague in War Criminal One. (See above for prosecution details.) Laura Bush, after a plea bargain, agrees to give evidence against the former president, "for God's sake".

March: Former vice-president Dick Cheney shoots himself in the foot hunting squirrels following a prayer breakfast in Hope, Florida.

April: Aung San Suu Kyi is released from house arrest and assumes her rightful place as the democratic head of the government of Burma.

May: All American and British troops leave Iraq, including the "300-400" British troops who are to stay behind to "train Iraqis" and do the kind of special forces dirty work almost never reported by embedded journalists.

June: All Nato troops leave Afghanistan.

July: The British government calls a halt to selling arms and military equipment to ten out of 14 conflict-hit countries in Africa. The chairman of the arms company BAE Systems is arrested by the Serious Fraud Office.

August: The British Department for International Development ends its support for privatisation as a condition of aid to the poorest countries.

September: Sir Bob Geldof and Bono visit Tony Blair in prison, suggesting a worldwide Crime Aid gig to raise money for their hero's defence.

October: The Booker prizewinner Anne Enright apologises to Gerry and Kate McCann, parents of the missing child Madeleine McCann, for speculating in the London Review of Books about the possible involvement of the McCanns in the disappearance of their daughter.

November: Gordon Brown is kidnapped, hooded and forced to listen repeatedly to his 2007 speech to bankers at a Mansion House banquet: "What you as the City of London have achieved for financial services, we as a government now aspire to achieve for the whole economy."

December: Tony Blair is sentenced to life imprisonment and beatified by the Pope.

If you think none of this will happen, you are probably right. But beware 2010 . . .

John Pilger, renowned investigative journalist and documentary film-maker, is one of only two to have twice won British journalism's top award; his documentaries have won academy awards in both the UK and the US. In a New Statesman survey of the 50 heroes of our time, Pilger came fourth behind Aung San Suu Kyi and Nelson Mandela. "John Pilger," wrote Harold Pinter, "unearths, with steely attention facts, the filthy truth. I salute him."

This article first appeared in the 22 December 2008 issue of the New Statesman, Christmas and New Year special

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Breaking the consensus

Even IMF researchers are calling time on free market dogma and the neoliberal orthodoxies of the past 30 years.

What has come over the International Monetary Fund? Not content with playing the good cop to Europe’s bad in the ongoing Greek crisis – in which it has been arguing for debt relief and less austerity – the fund has just published an article in its in-house magazine by three of its leading researchers entitled “Neoliberalism: Oversold?”. Their answer is “yes”.

The article takes aim at two of the most important aspects of the neoliberal economic agenda that has been so influential since the early 1980s. The first is the removal of restrictions on the movement of capital across international borders – so-called capital account liberalisation. Readers of a certain age will recall that 40 years ago there were strict limits on the amount of foreign currency one could buy before going abroad on holiday and companies had to show evidence of the need to import supplies to gain access to the foreign exchange market. Such restrictions were even harsher for international investment – making it almost impossible for institutions in one country to invest in the equity and bond markets of another.

Neoliberal theorists decried this situation as absurd. Rich countries have abundant capital, so the rate of return on it is relatively low, they argued. Poor ones are capital-scarce, so the returns on investment are high. Erecting artificial barriers preventing capital from flowing from rich countries to poor ones was therefore like stopping water from flowing downhill: an unhelpful intervention in the natural order of things, with detrimental consequences for all. During the 1980s and 1990s, international capital controls were thus dismantled worldwide – and often as a precondition for IMF assistance. The scale of private cross-border capital flows rocketed and soon eclipsed those of public-sector lenders, such as the World Bank and the IMF itself. 

But while these private capital flows were large, it quickly became obvious that they could also be extremely erratic. Throughout the 1990s, a succession of big developing countries enjoyed huge inflows of money  to be used for financing government spending and infrastructure development. But in each case, the new sources of funding turned out to be fickle, as private investors proved far less tolerant of heterodox economic policy than official funders had been. The result was a succession of crises – in Mexico in 1994, in east Asia in 1997, in Russia in 1998, in Argentina in 2001 – as the newly discovered rivers of capital suddenly began flowing the other way.

The IMF became well known at the time for insisting that these occasional stunning crashes should not derail liberalisation: they were just the price of reforms not fully complete. The new IMF article, in the June edition of Finance & Development magazine, disagrees. After nearly 30 years, it argues, the growing pains have not stopped. Open capital accounts have indeed increased developing countries’ access to capital for development but, strikingly, there is little evidence that this has raised growth rates. And there is no question that it has exaggerated the boom-bust business cycle, increased inequality and raised the odds of periodic financial crises.

Couched as it is in the equivocal language of cost-benefit analysis, this change of tune might sound inconsequential. It is not. Twenty years ago, Malaysia’s prime minister, Mahathir Mohamad, was branded an international pariah for reimposing capital controls to insulate his country from the east Asian financial crisis. The new IMF article concludes that such measures are “a viable, and sometimes the only, option”.

The second plank of the neoliberal agenda at which the IMF article takes aim will be even more familiar to UK readers: curbing the size of the state. In the 1980s and 1990s, the main emphasis on this front was on privatisation. As that agenda began to run its course, emphasis shifted to methods of constraining governments’ abilities to run excessive deficits of spending over revenues – and rules to avoid the accumulation of too much public debt. The Maastricht rules introduced by the eurozone countries in 1993, which mandated annual deficits of no more than 3 per cent of GDP and public debt of no more than 60 per cent, were perhaps the most prominent example.

For most of the 2000s, such self-denying ordinances seemed to be costless virtues.  Then, in 2007, the global economic crisis hit. After a brief flirtation with increased state spending when confronted with the steep recessions of 2008-09, the governments of the eurozone and the UK were converted again to the crucial importance of shrinking public debt and cutting spending. The notion that cutting spending can (or even is necessary to) boost growth – of “expansionary fiscal contraction” – came roaring back into fashion.

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The IMF broached its dissent early in the post-crisis period, with its economists expressing scepticism over the pace and timing of austerity in Europe. Christine Lagarde, the fund’s managing director, and Olivier Blanchard, its chief economist, argued for relaxing spending constraints and turning a blind eye to debt burdens until depressed economies were solidly recovering. 

Gossip-mongers at the World Economic Forum in Davos put it down to the fact that they are both French and therefore constitutional backsliders on matters of fiscal prudence; and policymakers preferred to pick up on pseudo-scientific economic sound bites such as the idea of a public debt tipping-point at 90 per cent of GDP. In reality, however, the IMF was merely stating the clear conclusions of conventional economic models – models that the vast difference since 2009 in the recovery of the US, which did not opt for austerity, and Europe, which did, appears to have proved largely correct.

The new IMF article drives home the point. The “short-run costs of lower output and welfare and higher unemployment”, it concludes, “have been underplayed, and the desirability . . . of simply living with high debt and allowing debt ratios to decline organically through growth is underappreciated”. Austerity is often self-defeating and debt limits by themselves are meaningless.

Is this two-part mea culpa on both capital flows and the size of the state a major landmark in the evolution of the IMF’s thinking – and could this be important in practice, given the intellectual heft that the Washington institutions bring to the international policy debate? It is, and it could.

Will it rehabilitate the IMF as an institution among the populations of the countries it is meant to serve? Here I am more sceptical. There is no question that there was disagreement on policy in east Asia in 1997, for example. But the real problem with the IMF’s intervention had to do not with the correctness of its prescriptions but their legitimacy. The single most enduring image of that painful period was the photo of the then managing director of the IMF, Michel Camdessus, arms folded and frowning like a schoolmaster giving detention, watching over President Suharto of Indonesia as, humiliatingly, Suharto bowed to the inevitable and signed up to the fund’s financing plan.

In many developing countries, memories of unjust colonial domination are raw and if the IMF is to help resolve the growing dissatisfaction of populations with policymaking elites, it will need to do more than just make improvements to its advice – no matter how sincere and welcome such improvements may be. The reality that, in effect, power over its assistance belongs exclusively to a handful of rich economies will have to change. Reforming its governance to give developing countries more control is the place to start.

In the UK, meanwhile, we can have no such complaints. We have no one to blame for taking neoliberalism’s crazier ideas too seriously but ourselves.

Felix Martin is the author of “Money: the Unauthorised Biography” (Vintage)

Macroeconomist, bond trader and author of Money

This article first appeared in the 02 June 2016 issue of the New Statesman, How men got left behind