Lets start talking about political economy and the ECB-IMF consensus

We are all affected by climate change but in different ways. All societies are converging toward a world that is more carbon intensive than the past and this has real observable implications. One rarely questions this ‘convergence’ in climate change.  Similarly, we all affected by the trajectory of change instituted by how capitalism has evolved since the 1980’s. This, of course, manifests itself in different ways. The history of India is very different to the history of Ireland but we can make real observations in both countries to illustrate the logic of how capitalism has evolved. Domestic institutions mediate this change  but these matter less than the shared commonality and experience of living in capitalist societies. So, why do the political and media establishment never talk about this historically specific socio-economic system called ‘capitalism’?  Why are we content to use that apolitical term ‘market’? And, how should we understand the logic of change implicit within the contemporary manifestation of capitalism as it has evolved in response to the Eurozone crisis?

The language of evolution is useful to describe the process through which change occurs in capitalist societies. If we exclude dubious notions of the ‘survival of the fittest’ and tautological notions of psychological behaviorism and focus on the core concepts of adaptation, conflict, change and cooperation we gradually get a sense of how actors (be they trade unions, mulitnationals, NGOs, governments or political parties) use and re-cycle the institutions of capitalist socities and the processes through which they form and express their interests and objectives. In capitalist societies there is a general pressure, because of unequal power relations, for national governments to adopt specific policies to achieve specific outcomes. Labour markets should be flexible to enable employers to hire and fire, marginal taxes should be low, interest rates should be determined by market forces. Capitalism, regardless of its variety, is moving in a neoliberal direction and despite the global ‘great recession’ is not remotely faltering in its tracks.

Why is this the case? Is it because of ideas, power, institutions or organised interests? One thing for sure, it is not the pure technocratic adaptation that most economists would like to think. It is the result of a specific configuration of powerful interests that are based on unruly and at times ungovernable behaviour. It is anarchic and political.  Yet, rarely, if ever, do we talk about this or contest it. Capitalism is presented as the market or the economy that is free from conflict or political contestation. In this regard, you rarely hear media commentators talk about the two most important factors that underpin the economy: power and capitalism. Now, granted, these are vague concepts that require deeper specification. But, how do we develop specific ways to describe and understand capitalist power without becoming too general? One way to start is to identify the contemporary and common trajectory of change that is occurring in response to the European economic crisis.

In 1989, John Williamson, wrote an exposition ‘what does washington mean by policy reform’. This document outlined the core objectives and outcomes required by Latin American states that required IMF assistance. It was the first coherent blueprint for what would later be called ‘neoliberalism’. Therefore it is worth examining the commonalities between these prescripted policy reforms and the ‘adjustment’ requirements imposed on Ireland, Greece and Portugal.  We need a contemporary analysis for the European context – the topic of my next post. The core fundamentals of what is meant by policy reform and informed by specific ideas as to how market-capitalist societies should be run are almost identical in 1989 and 2011.

Firstly, fiscal deficits, it is argued, that exceed two percent of GDP are an indication of of a sick economy. Thus, the first problem is government spending not reckless behaviour in the private market. It is not the unregulated buying and selling of money that will lead to imbalances in the economy but government spending (i.e institutions of the welfare state). If an economy faces problems the prescription is to ignore the private sector and concentrate on cutting fiscal deficits i.e cut public spending. Secondly, ‘the ECB-IMF consensus’, argues that when governments engage in a fiscal adjustment it should always occur via a cut in public spending not raising revenue via taxation.  Marginal taxes should be cut and the base widened to include water, property and general consumption. Thirdly, interest rates should always be determined by private market actors. They know best and any interference by public bodies will lead to mismanagment.

Fourthly, exchange rates should be kept down to encourage export led growth. Export led growth is achieved through a containment of labour costs. Governments should aim to increase economic productivity but remove institutions in the labour market that allow wages to grow at the same rate. A competitive exchange rate and low wages will enable the economy to grow (i.e. capitalists make more money for investment). Furthermore, and implicit it the adjustment is to remove all restrictions to ‘competitiveness’ by lifting barriers to liberal trade. This obviously includes the removal of any restrictions on capital flows. An aggressive liberalisation of all markets be they caputal, labour or product should determine ‘public’ policies which, in effect, amounts to regulating for capitalist accumulation. The more liberal an economy the more foreign direct investment will increase. To make this happen the state should privatisatise its assets whilst simultaneously regulating the market (think energy) for competition and guarantee property rights through legal codes.

Does this  ‘Washington consensus’ for Latin American of the 1980s sound familiar? Yes, because it is identical to the new ‘European’ consensus governing the political response of the ECB, IMF and EU Commission to how Ireland should ‘adjust’ to its crisis. The problem in Ireland is that most of these policies have already been pursued for the past 20 years. So, how far do they want us to go? It is about time we started talking about the real power relations and politics governing our capitalist society. The first step is to radically question the ECB-IMF consensus on the European economic crisis.


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