Populist Nationalism forces the IMF to change its Tune

The sudden rise of the latest expressions of populist nationalism has triggered panic in both democratic and wholly capitalist organizations worldwide. It is a phenomenon that traditional pundits failed entirely to foresee but that erudite democrats from Noam Chomsky and Joseph Stiglitz on the left to Robert Kagan and George Will on the right have been warning about for some time now. But as that phenomenon has burgeoned over the past few years, taking strong root in both Western Europe and the United States, first think-tanks and then major multilateral organizations have had to start accepting it as real and as a clear and present danger, not only to capitalist democracy as a systemic Western framework, but also to liberal economics as the world has known it up to the present.

But perhaps the biggest change in thinking at the crest of the IMF hierarchy is apparently that no one there any longer believes in the erstwhile Reaganesque theory of “trickle-down economics”. If there’s one thing that the last few decades have proven, in fact, it is that what trickles down is ever greater impoverishment. While some statistics may belie this, because they draw sustenance from data about the poorest classes on earth which, in some places, have marginally improved their lot, the most obvious worldwide decline, especially since the advent of the Great Recession, has been observed in the middle classes. Meanwhile, the top of the heap has grown to be a lot cozier place than ever before as the world’s richest billionaires have managed to get a corner on about half as much wealth as the entire rest of the world has to live on.One such organization is the International Monetary Fund (IMF), in this case an institution about which one might add, “Better late than never.” In all fairness, ever since the worldwide crisis sparked by the 2007 US stock market crash and subsequent worldwide Great Recession that followed it, the IMF has been re-thinking its long staunchly conservative policies for dealing with the world. Under the leadership since 2011 of Smithian liberal attorney and economist Christine Lagarde, the IMF has moved away from its former image as a sort of “branch office” of the US government toward a more clearly leading role in the worldwide economy, with a decidedly European bent.

The latest conclusion of the IMF appears to be, then, that if you want fairer distribution of wealth in the world, somebody’s going to have to lend a hand distributing it, because otherwise, trickle-down or no, it’s just not happening. The new outlook at the IMF is apparently based on the idea that such alarming phenomena as the advent of Brexit in Britain, the rise of the far-right in France and—to an ever increasing extent—Germany, combined with a sharp swing to the ultra-right in the US as a result of recent elections there, will fuel a worldwide increase in protectionism and nationalist divisions. And such changes on the world political stage promise to exert their cruelest effects on the most vulnerable segments of the middle and lower classes.

According to IMF Director Lagarde, “Putting it simply, growth has been too low, for too long, and benefiting too few. The social and political consequences are becoming all too apparent. Inequality remains too high in too many countries. Conflict and migration exert a terrible toll. Trade has become a political football. And supporters of economic integration ­and cooperation ­are on the defensive.”

According to Lagarde, globalization should have worked differently than it has. It should have taken social inclusion into account and never did. And so it has failed to work for everyone. It has ignored those at risk of being left behind and has concentrated more wealth than ever before at the pinnacle of economic power.

What’s hard to understand is the mindset of precisely those who are being left behind and who have, nevertheless, bought into the campaign promises of populist nationalists who, in the case of the US elections, for instance, are intimately linked to precisely the same upper one percent of the economy that is responsible for repressing their hopes and dreams of a better, fairer, more just existence. It’s difficult to see, for example, how the angriest, most disenchanted sectors of the US white working classes can have looked past the fact that their current businessman president is considered one of the world’s wealthiest men in order to elect him as their potential economic savior.

According to Lagarde, in comments she made (https://www.ft.com/content/134aac12-4403-11e6-9b66-0712b3873ae1) to the Financial Times of London, Britain’s vote to leave the EU is already casting a shadow over international growth, and the imposition of new trade barriers in another large economy could have ruinous effects. Said Lagarde, “I think it would be quite disastrous, actually. Well, I don’t think I should say disastrous because that is an excessive word and I should refrain from excessive words. But it would certainly have a negative impact on global growth.”

How worried should the world be about the anti-globalization trend being pushed by populist nationalists? In that same interview with the FT, Lagarde went as far as to say that she hoped the trend wouldn’t push the world toward another “1914 moment” and called on leaders to learn from history so as not to condemn the world to repeating it.

“I hope it is not a 1914 moment,” she told the FT, “and I hope that we can be informed by history to actually address the negative impact of globalization in order to leverage the benefits that it can deliver. Because it has historically delivered massive benefits and it can continue to do so.” According to the FT, she added that in the past, “waves of protectionism” had “preceded many wars” and that protectionism “hurts growth, hurts inclusion and hurts people.”

At the recent World Government Summit in Dubai, Lagarde pointed to a “creeping, insidious push” toward anti-globalization and protectionist thought as a factor that the world had evidently ignored, and which was the reason why Brexit and the advent of the Trump era in the US had taken much of the world by surprise.

“We have been saying globalization is great, international trade is great—and it is,” she said. “But we have not looked at those who were badly, negatively impacted.”

She blamed those negative impacts in part on the rise of robots taking jobs, as well as on shrinking gains being made by the global middle class. In other words, seen from her point of view, the failure of world leaders to deal with the most negative aspects of globalization has led to growing discontent among middle and laboring-class voters in the West, causing them to flock massively toward nationalist populism at the polls because of the perception of a globalized economy and indeed of foreigners and foreign interests as the cause for their decline.

While admitting that the current US administration’s economic policies would probably, for a time, provide a brighter climate in the US domestic economy, Lagarde has hinted that this would be short-lived, because a strengthening dollar and rising interest rates, coupled with the new US administration’s promise to impose high trade tariffs on major trading partners like Mexico and China were likely to put a squeeze on international trade. And although the US might seek to impose nationalist policies, globalization has for so long been the major force in the world economy that what goes around now tends to come around. As the 2007 financial crash in the US proved, one major economy affects all major economies. Isolationism has been rendered, then, a myth and an impossibility, or at least an improbability unless accompanied by resulting global upheaval.

Jacob Funk Kirkegaard, a senior fellow at Washington’s Peterson Institute, thinks the IMF has come to the globalization debate entirely too late, as witnessed by the recent inroads of populist nationalism throughout the West and especially in the US, Britain and France.  In a recent interview with Spain’s El País, he claimed that one of the problems is that economists have for too long relied on tools that measure growth strictly in term of Gross Domestic Product (GDP). “But…if that growth goes to two percent of the population and the other 98 percent loses, you’ve got a political problem.” And that’s a pretty fair description of precisely what’s been happening to an ever-greater degree in recent decades.

Nobel Prize-winning economist Joseph Stiglitz has described as “stupid” the long-held conservative idea that if governments could simply keep their public accounts balanced, markets would freely function on their own providing profits and full employment from which the entire world could benefit. Stiglitz posits that, on the contrary, whenever there is economic integration, there are winners and losers, except when powerful liberal policies are introduced to protect the latter.

This is, precisely, an idea that the IMF is now, in what can only be seen as an eleventh-hour bid, trying to introduce into its policies, as a means of righting the wrongs of globalization as it stands up to now. But even as, in a clearly positive move, the multilateral institution calls on its members to start introducing social policies to protect those left behind and to include them in the enormous benefits that globalization has provided but which have found their way into the pockets of only a tiny segment of the population, this smacks of being way too little, way too late.

The lingering fear of liberal thinkers everywhere is that we may well be forced to witness the indubitably and unthinkably destructive rise and fall of nationalist populism before any such correction in the liberal distribution of global wealth can take place. And the other question that few are willing to ask is, under what terms worldwide society will be able to survive that process…if at all.