More misery for the many and more bailouts for the banks are what’s on offer from the world’s major financial institutions. We must resist, argues John Clarke

The annual Spring Meetings of the Boards of Governors of the World Bank Group (WBG) and the International Monetary Fund (IMF), underway between 10 and 16 April, ‘bring together central bankers, ministers of finance and development, parliamentarians, private sector executives, representatives from civil society organizations and academics to discuss issues of global concern, including the world economic outlook.’

The ‘world economic outlook’ that these meetings will wrestle with will certainly give them plenty of cause for concern. Both the World Bank and the IMF have already issued studies that, while they strike a positive note and advance solutions, are hardly cheerful reading.

Tough times ahead

The World Bank has issued a report on ‘Falling Long-Term Growth Prospects: Trends, Expectations, and Policies.’ It is of particular interest precisely because it looks at the prospects for the decade ahead. It opens with a grim assessment and states that:

‘Across the world, a structural growth slowdown is underway: at current trends, the global potential growth rate – the maximum rate at which an economy can grow without igniting inflation – is expected to fall to a three-decade low over the remainder of the 2020s. Nearly all the forces that have powered growth and prosperity since the early 1990s have weakened, not solely because of a series of shocks to the global economy over the past three years. The growth rates of investment and total factor productivity are declining’ (p.1).

The Bank’s chief economist, Indermit Gill, warned that a ‘lost decade could be in the making for the global economy.’ Gill suggested, however, that this disturbing prospect isn’t inevitable, and that the ‘global economy’s speed limit can be raised – through policies that incentivize work, increase productivity, and accelerate investment.’

In an interview with Devex, Gill stressed that ‘workers and families around the world are facing tough times ahead’, but insisted that the corrective measures he advocated were essential. ‘Things are likely to be worse for you, unless governments do a really good job of walking this very tight path between cutting inflation and keeping growth going,’ he said.

The IMF agrees that the global economy is taking a very bad turn and has very similar ideas when it comes to corrective approaches. It has produced a new ‘Global Financial Stability Report’ that opens with the observation that: ‘Financial stability risks have increased rapidly’ in the last six months (p.1).

The writers note, with regard to the present banking crisis, that it represents ‘a powerful reminder of the challenges posed by the interaction between tighter monetary and financial conditions and the build-up in vulnerabilities since the global financial crisis’ (p.2). They observe that ‘what initially appeared to be isolated events in the US banking sector have quickly spread to banks and financial markets across the world’ (p.2).

The report shows that the finest minds in the leading institutions of global capitalism didn’t foresee the rapid results that would flow from the driving up of interest rates. ‘Market participants failed to adequately prepare for rate increases … While risks are obvious in hindsight, the systemic implications of the existing weaknesses were largely unanticipated by policymakers and investors alike’ (p.3). In the aftermath of this nasty shock, the writers now appreciate that the ‘fundamental question … is whether these recent events are a harbinger of more systemic stress that will test the resilience of the global financial system’ (p.3).

The report expresses dismay that the ‘emergence of stress in financial markets is complicating the task of central banks at a time when inflationary pressures are proving more persistent than anticipated’ (p.5). It is important to appreciate the fundamental objectives that are being expressed here. The IMF is acutely aware of the fragile state of the global economy and it now has compelling evidence of the vulnerability of the financial system before it. It wishes to move ahead with a set of ruthless solutions, but it confronts the danger that the cure may be worse than the illness.

The IMF is convinced that the chronic economic malaise that the World Bank’s chief economist points to can be overcome by intensifying the exploitation of workers and further reducing levels of social provision, thereby increasing rates of profit. There is no credible evidence of any ‘wage-price spiral’ that is driving inflation, but there are powerful indications that the present cost-of-living crisis is generating a major fightback. Higher interest rates are key to reducing the capacity for working-class resistance by intensifying job insecurity and undermining workers’ bargaining power. The determination to proceed with the interest-rate attack is based on this.

A recent IMF blog post stresses that this form of monetary policy needs to be augmented by the tightening of fiscal policy. This means that, as interest rates are driven up, their harmful impacts are to be compounded by further rounds of austerity and social cutbacks. As the post notes approvingly: ‘Nearly three-quarters of countries tightened both fiscal and monetary policies last year.’

It is clear that the IMF sees raised interest rates and intensified austerity as interconnected elements of a class-war approach to economic instability. The blog writers argue that: ‘Many countries will need a tight fiscal stance to support the ongoing disinflation process – especially if high inflation proves more persistent.’

They appear to qualify this with the observation that: ‘Tighter fiscal policies require better targeted safety nets to protect the most vulnerable households.’ However, this is consistent with the longstanding IMF goal of eliminating substantial social protections and replacing them with measures targeting only the very poorest and the destitute.

Uncertain impacts

Michael Roberts has noted that the leading representatives of global capitalism are up against a major contradiction at the present time. Restoring profitability through a ruthless round of ‘creative destruction’, that would purge the unprofitable sector and discipline workers, is an appealing proposition, but they are simply not ready for the dire economic and political consequences that flow from such a course.

As Roberts points out, such harsh treatment shaped the initial response to the financial crisis of 2008. However, a desperate change of course and an unprecedented round of bailouts soon followed. The present interest-rate attack has rapidly led to dangerous instability in the financial sector. For all their desire to proceed with measures that will tilt the balance decisively in favour of the capitalists, the writers of the IMF report anxiously declare that: ‘Policymakers should act swiftly to prevent any systemic event that could shake investor confidence in the global financial system. Confidence is at the core of the financial sector and policymakers need to be ready to take all necessary steps to maintain it.’ However, even as ‘liquidity’ is pumped into ailing banks, ‘policymakers … should clearly communicate their continued resolve to bring inflation back to target as soon as possible once financial stress lessens’ (p.5).

Throughout its report, the IMF uses the term ‘agile’ to describe the approach that must be taken. It is an astounding notion that readily accepts that ‘policymakers’ should mercilessly drive up interest rates and devastate social infrastructures to solve the economic crisis. On the other hand, banks that engage in reckless lending practices and that run into difficulties must be rescued with limitless quantities of public funds.

These reports are the work of specialists in imposing the burden of capitalist crises on poor countries and working-class populations. Very far from swallowing their bitter medicine, it is vital, in the face of the present cost-of-living crisis, to increase the scale of the fight back. The strike wave in the UK and the massive struggles that are underway in France are indications of how we should respond to the ‘solutions’ being offered by the World Bank and the IMF.