Christine Lagarde is the managing director of the International Monetary Fund (IMF), which has been meeting in Washington. She has been reminding us that she’s also a French Tory politician by praising George Osborne’s management of the British economy and demanding Greece bring the “reforms” demanded by its creditors to “fruition”.
We shouldn’t forget that Lagarde’s two immediate predecessors, Rodrigo Rato and Dominique Strauss-Kahn, are experiencing close brushes with the law.
She herself is being investigated for allegedly abusing her power as French finance minister in favour of a big donor to Nicolas Sarkozy’s 2007 presidential campaign.
The IMF is thus an apt symbol for Western capitalism, which dictates to the world but is awash with sleaze. It generally acts as a booster for neoliberalism. But since the financial crash of 2007-8 it has had to acknowledge that all is not well with the world economy.
So while Lagarde was swanking around, the IMF issued its latest six-monthly World Economic Outlook. It included a study that suggests that the economic and financial crisis has done permanent damage to global growth.
The study traces the growth of potential output, by which is meant the level of output that can be achieved without causing a rise in the rate of inflation.
It predicts that in the advanced economies the growth of potential output would barely rise from an average rate of 1.3 percent a year in 2008-14 to 1.6 percent in 2015-20. This is way below the pre-crisis rate of 2.25 percent in 2001-7.
The IMF also predicts that the “emerging market” economies—the likes of China, India and Brazil—will slow down. Their rate of growth of potential output will fall from 6.5 percent in 2008-14 to 5.2 percent in 2015-20.
These figures don’t look so bad. But if the IMF is right, growth in the rich countries is going to continue, as Marxist blogger Michael Roberts puts it, to “crawl” at levels little higher than those in the period including the Great Recession of 2008-9.
There is a debate among mainstream economists about why this is happening. Lawrence Summers, ex-US treasury secretary and president Barack Obama’s chief economic adviser has revived the thesis of “secular stagnation” first put forward by followers of John Maynard Keynes during the 1930s.
He argues that capitalism is suffering from a shortage of effective demand that condemns it to slow growth. His remedy is less economic inequality and more public investment.
The left liberal economist James Galbraith, who is close to the Syriza government in Greece, argues that the source of the problem lies much deeper, in such factors as the decline of US military power and the end of cheap oil.
Other economists see the causes of secular stagnation in things as various as a decline in technological innovation and the ageing of Western populations.
What is interesting about this debate is that it shows that even a citadel of neoliberalism such as the IMF now acknowledges that capitalism is badly broken. Its own remedy is predictable—yet more free-market “reforms” of the kind Lagarde is demanding from Greece. In one sense this diagnosis may hit close to the truth. “Reform” these days comes down to different ways of weakening organised labour, making it harder for workers to resist greater exploitation.
This chimes with the explanation for slow growth offered by Marxists such as Roberts. This is that underlying the crash and the slump was a long-term decline in profitability that affects all the major capitalist economies.
The bosses have used the crisis to squeeze workers harder. But this hasn’t pushed profits up enough for them to be confident about investing. The IMF calculates that private investment in the advanced economies declined by 25 percent in 2008-14 compared to forecasts made in early 2007.
Rather than undertake productive investments, the corporations are shoving money into the financial markets. Stock-market bubbles are busily inflating all over the world—most notably in China. Little wonder that a veteran neoliberal like Summers is looking to the state for salvation. But he shouldn’t hold his breath.