Reglobalisation in action- Part 3: Rethinking the role of the IMF

The Fund’s new prescriptive discourse on the need to tackle inequality is being challenged and undermined by its own continuing economistic conventions.

Read Part 2 of the blog series on ‘reglobalisation in action’.

As earlier posts in this series have underlined, globalisation needs to be understood as a political construction, not an inevitable technological imperative.  It follows therefore that it could be constructed differently.  Rather than reifying globalisation as a tendency, it makes more sense to focus on those global agents most engaged in processes of market-making and integration, such as the Bretton Woods institutions. They are, after all, the key players engaged in constructing the new globalising political economy.

Indeed, the IMF, historically seen as archetypically neoliberal, has recently questioned its own prior approach to global market integration on the grounds that it exacerbated inequalities and threatened global stability.  Better late than never, one might say.  However, tackling inequality is now seen by those at the heart of multilateral global governance institutions, such as Christine Lagarde, the current IMF Managing Director, as a key buffer that could sustain liberalism against rising beggar-thy-neighbour economic nationalism and illiberal populism.  So could the IMF be an author of a different, less inequality-riven globalisation?

In earlier IMF talk about poverty alleviation, its policy remedies were often the standard fare of the Washington Consensus – let free markets reign, and a rising tide will (eventually) float all boats.  Recently, however, the Fund’s commitment to tackling inequality has become more thorough-going, encompassing a wider array of policy responses, including increased reliance on progressive income tax.  Today’s IMF sees the need to tackle inequality – now deemed a ‘macro-critical social indicator’ and, as such, central to the Fund’s mandate – as a key component of secure, durable growth.  This is important because we know that those who can make authoritative knowledge claims, such as the Fund, enjoy a privileged position in constructing economic rectitude.

Compared to previous IMF poverty-alleviation efforts, the background conditions are arguably more propitious.  Firstly, successive managing directors have strongly backed the shift.  Secondly, the Fund has begun to alter the centre of gravity of its economic thinking in a somewhat more Keynesian-sympathetic direction, and thus in a way that can dovetail with the equality agenda.

And yet, in acquiring these fresh priorities (tackling inequality; bolstering social protection), the IMF has tended to graft them on to existing goals (getting its loans paid back, worrying about the long-term fiscal sustainability of its members) and operational practice.  Many of its standard operating procedures, such as its norm of recruiting only mainstream macroeconomists, endure.  This presents problems for the expert legitimisation on which Fund policy prescriptions normally rest, because mainstream economics does not address inequality issues either extensively or effectively.

This begs the key question: does the IMF’s designation of inequality as a ‘macro-critical social indicator’ at the core of its mandate generate a gap between rhetoric and practice?  After all, as a large and bureaucratic international institution with low and slow staff turnover, the Fund finds it difficult to effect rapid change.  It is always hard to turn tankers around, especially amid what Ilene Grabel has called ‘increasing contestation and even confusion within the Fund’. 

Drilling down into how it seeks to operationalise tackling inequality and social protection in its surveillance work only highlights the tensions and contested boundaries of macro-criticality.  For example, the Fund’s leadership talks in expansive terms of making social spending a core component of a ‘social contract’ by which its missions can be fulfilled, and conceives of it as an investment.  Yet, in desk-level operations, social spending is considered more narrowly as a cost.  The kinds of economists hired, and the mind-sets routinely embedded in their models, means that commitment to such a social contract becomes heavily circumscribed in its translation into social spending. 

Moreover, the Fund perceives macroeconomic models as technocratic tools of objectivity and even-handedness which depoliticise IMF actions, whereas the reality is that, in realms underexplored in mainstream economics – like tackling inequality – Fund staff lack the requisite models and analytical tools to underpin their surveillance work.

For operational purposes the Fund in effect adopts a somewhat narrow view of social protection (officially comprising education and health spending, as well as social insurance and social assistance programmes), thus excluding policies related to long-term poverty reduction, development, job creation, and labour force participation.  The Fiscal Affairs Department is tasked with leading coordination of internal resources and collaboration with external experts on social protection and facilitates its analysis through a particular fiscal sustainability lens.  These are examples of how reliance on internal cognitive filters that unknowingly shape the way IMF economists make sense of how they should engage with inequality risks a narrowing of the policy agenda.  This limits the institution’s capacity to become an effective actor tackling inequality and improving social protection.

Our analysis of its recent operational guidelines finds that the IMF invokes the centrality of technical expertise and resource limitations to delimit its engagement on social protection. This serves a dual purpose: it bolsters its legitimacy and technical authority to act as custodian of global stability and it allows it to justify its narrow engagement in areas (such as inequality) which lie beyond its established areas of expertise.  Recent Fund discussion of future surveillance priorities suggests that internal expertise and resources will be shifted away from social protection to concentrate more on macro-financial links, cross-border spillovers and financial expertise.  It seems that the Fund’s future focus on social protection surveillance ‘will likely be anchored in a mindset of risk management’ rather than one driven by a ‘social contract’ designed to protect the poor and vulnerable.

All of this cannot but raise concerns about the disconnection between recognised analytical gaps and stated social and egalitarian strategic priorities.  It also illuminates a broader pathology within the Fund, of recurrent tension between technocratic compulsions and legitimacy pressures.  Notwithstanding shifts in high-level IMF rhetoric, a continuing rigidity in mind-set and priorities represents a major roadblock limiting more substantive transformation.  In fact, the Fund’s reorientation of its prescriptive discourse on to more progressive, egalitarian territory, whilst remaining operationally within conventional economistic parameters that stress fiscal sustainability, serves not only to exacerbate its legitimacy problems but also inevitably limits the depth and efficacy of its actual social protection operations.

There exists, then, a paradoxical relationship between the Fund’s economistic predispositions and its quest for political legitimacy.  Mainstream economics normally provides a degree of technocratic or ‘scientific’ legitimacy to the Fund’s prescriptive discourse, but here the disciplinary strictures of an economics approach to inequality and social protection narrows the scope of policy response, undermining effectiveness.

Nevertheless, the Fund still has the potential to play a pivotal role in constructing a ‘re-embedded post-neoliberal’ mode of reglobalisation.  Our identification of the paradox at the heart of its approach to tackling inequality underlines the need for the Fund to pursue its auto-critique of neoliberalism further to deliver its social and equality commitments.  This could be advanced by expanding recruitment to include more heterodox economists, and indeed non-economists, to develop different kinds of technical expertise in this and other macro-critical policy areas.

The IMF’s bolstered commitments to tackle inequality are unquestionably a significant shift within global governance.  Its new post-Lagarde leadership will have the opportunity to close the gap between rhetoric and practice that the IMF itself has recognised.

Read Part 1 and Part 2 of the blog series on ‘reglobalisation in action’.