The Director of the International Monetary Fund (IMF) shared in Brussels today elements from the Global Outlook and Policy Priorities of the organisation, to be presented next week in Washington at the semi-annual meeting of the World Bank and the IMF. This is the IMF assessment of the global economy.
Comparing macro-economics and architecture, Lagarde reminded her audience that for Vitruvius, a Roman architect, the three principles for good architecture are durability, utility and beauty. Similarly, she said, the economy needs to be sustainable (durable), inclusive and productive (utility) and… What about beauty? “The beauty would be when there will be a new way of calculating the size of our economy”, she concluded.
This provoked a question which unfortunately I didn’t get a chance to ask: What are the obstacles to beauty? Why does the IMF not go beyond GDP to assess the health of national economies? Why does it not factor in the environmental, social and gender dimensions in its calculations? Why are IMF recipes undermining public services, while they are an indispensable ingredient for women’s economic justice and fairer economic policies that leave no one behind?
Lagarde presented the three-pronged approach encouraged by the IMF: 1) fiscal discipline, structural reforms and monetary policies that support growth; 2) sharing the benefits of growth more equitably to reduce rising inequality; and 3) cooperating at international level through multilateral frameworks because policies in one country impact other countries.
But as long as the lens through which economies are assessed is GDP, the first dimension will prevail over the second – which means that cuts in public spending (austerity policies) will continue to be encouraged, instead of investing in less-profitable but crucial sectors or of fighting tax avoidance and competition.
Answering questions from the room about such contradictions, Lagarde explained that when there are cuts in pensions, the IMF encourages governments to cut the highest pensions and to protect the lowest. She also said that measures are needed to assist people affected by changes (i.e. those who lose their jobs or see their life destroyed because of automation, trade liberalisation or cuts in public spending aimed at fostering growth). But these are neglible when one considers the huge numbers of unemployed, ill-employed and under-employed people. People should get vocational training or get job adverts via text message on their mobile phones. They should also get higher unemployment benefits conditional on efforts to find a new job. All this is good as long as there are as many jobs as jobless people, but everybody knows that this is not the case.
If the objective of a healthy economy is to serve the people and the planet, why is the IMF – and the EU – still using GDP or economic growth as the yardstick and ultimate objective? Many alternative measures of progress have been proposed, so what are the obstacles to beauty?