In Washington last week I attended an interesting debate at the Brookings Institution between IMF chief Dominique Strauss-Kahn, ITUC General Secretary Sharan Burrow, Nobel-winning economist George Akerlof and Stephen Pursey from the ILO. A video and a summary (with transcript) are available.
The event was notable not least for DSK cuddling up to the ITUC, the ILO and a critical macroeconomist. His closing words, moreover, were:
Stability depends on a strong middle class that can propel demand. We will not see this if growth does not lead to decent jobs, or if growth rewards the favored few over the marginalized many. Ultimately, employment and equity are building blocks of economic stability and prosperity, of political stability and peace. This goes to the heart of the IMF’s mandate.
Have we maybe died and gone to heaven, as one commentator joked?
Doubts are, of course, in order given the structural adjustment programmes being inflicted on a number of countries. Here too, though, it is worth noting that the IMF is cooperating with the ILO and ITUC in looking at the working of such programmes in some countries. There is voice: substance must follow. And – although this is cold comfort for Europeans – the IMF was substantially more dovish (less hawkish) than the European public authorities in the case of the Greek and Irish so-called bailouts.
A further example of this new ambiguity came at another Washington meeting I attended (held under the Chatham House Rule), in which an insider explained the coexistence of research papers of a progressive nature (on fiscal policy, or the link between inequality and growth, for example) with policy interventions by the same institution very much in keeping with the old Washington Consensus in terms of a major struggle going on within the organisation. Certainly institutional change is a lengthy process. (It is not too much of an exaggeration to say, echoing Thomas Kuhn, that it normally requires some people, if not actually to pass away, then at least to retire.)
All this served to confirm my growing sense that many on the political Left and Keynesian economists are rather too negative in assessing the knock-on effects of the crisis on mainstream thinking.
In the face of destructive austerity policies and electroral setbacks for the centre-left this is understandable. Still, there have been notable shifts in the consensus or establishment view, to the left politically and towards Keynesian economics. DSKs speech would have been unthinkable from an IMF head at any time since the mid-1980s. It is easy to forget that the term aggregate demand was the equivalent of a four-letter word, not to be used in polite society, for a generation. No longer. In Europe, key elements of the Maastricht architecture have been thrown overboard. IMF studies argue that inequality caused the crisis, while an OECD analysis (not yet published) identifies labour market deregulation as the prime cause of … guess what? (growing inequality)
This is not a call for complacency. These are examples, not an overwhelming and irreversible trend. The biggest crisis since the 1930s should surely have led to much bigger changes. There is stand-still in some areas and a roll-back in other. Nevertheless, there are big risks in oneself falling into an ideological Great Depression. Where battles have been won, it is good for morale to say so openly. The struggle for the influential policymaking institutions is still open and can still be won. Alongside critiques of existing policies there is a need to develop and propagate alternative visions.
We are a long way from a new, progressive Washington Consensus, but it remains a feasible goal.