www.ituc-csi.org/IMG/pdf/ituc-imf_background-paper_0412.pdfThe international trades union congress has produced a report which considers what the IMF says as compared to what it does. The focus is employment, as you might expect considering the source.
In an article published in September 2011 in its magazine the IMF reported on inequality and the article quotes it as saying
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“The research described here shows that it is important to have realistic expectation about the short-term consequences of fiscal consolidation: It is likely to lower incomes – hitting wage-earners more than others – and raise unemployment, particularly long-term unemployment.
In the same issue the reported research which found that increased foreign and domestic indebtedness was associated with greater income inequality and that this was apt to lead to instability.
In 2011 the then managing director of the IMF made a speech in Washington in which he said
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We must get past the binary and unhelpful contrast between ‘flexibility’ and ‘rigidity’ in labor markets and ask instead if policies are effective in creating and sustaining jobs…. IMF research suggests that inequality can make countries more prone to financial crises, especially if associated with a large financial sector [and] also shows that sustainable growth over time is associated with a more equal income distribution jobs…. IMF research suggests that inequality can make countries more prone to financial crises, especially if associated with a large financial sector [and] also shows that sustainable growth over time is associated with a more equal income distribution…. We need policies to reduce inequality, and to ensure a fairer distribution of opportunities and resources. Strong social safety nets combined with progressive taxation can dampen market-driven inequality…. Collective bargaining rights are important, especially in an environment of stagnating real wages. Social partnership is a useful framework, as it allows both the growth gains and adjustment pains to be shared fairly.”
In light of these findings one would expect that IMF conditons on financial help would be different for different places, and that at least in some places they would be conditions designed to increase protection for workers and to reduce income inequality. So what actually happens? The paper looks at the conditions imposed on 6 countries which have had loans from the IMF.
Greece: One condition of the bail out was a 22% reduction in public sector employment. If achieved that would bring public sector employment 3% below the OECD 2008 average, to 12% by 2015.
A second condition aimed at reducing wages in the private sector by 15%. To do this the minimum wage was to be reduced by 22% for adult workers and 32% for those aged under 25.
Pensions above 1300 euros were to be cut by about 11% and unemployment benefits were restricted as well
Other provisions aimed to increase labour flexibility by allowing longer ours to be worked and restricting overtime: so those with a job worked more: and available work was not shared out
This programme doubled unemployment in two years. All of these measures were aimed at the poorest workers and so serve to increase inequality, despite the research findings noted above. Nor did it produce the results aimed at: Greece is not growing and it is not solvent.
Ireland: The conditons of the loan to Ireland included reducing state benefits for children and the elderly, and tighter conditions for unemployment benefits with more means testing. The latter was aimed to increase the incentive for people to seek work: a mere insult given there is no evidence that people were unwilling to work. But we have seen that before!
As with Greece minimum wage agreements were to be "reformed" (read abolished) and working conditions reduced
Unemployment increased as a result, to 15% by 2012. GDP did not increase: it fell and then stagnated. Cuts to employment, minimum wages and benefits increased inequality
Portugal:Here the conditions focussed on reductions in employment protection on the grounds that these were more restrictive than thos in other countries: specifically there was more protection than in Germany or Spain. According to their own research and that of the OECD there is not much evidence that such protection is associated with poor economic performance. But it is just possible that is because they have no idea what they are talking about. They told Portugal that their calculations showed employment restrictions there were tighter than those in Spain: one month later they told Spain that employment restrictions in that country were tighter than those in Portugal. See my sig!!
But who cares about reality: we have an ideology! So Portugal was required to cut unemployment benefits, and limit minimum wage increases. Employers' contributions to social security through payroll taxes were to be cut as well: but government tax income would be preserved by increases in VAT and expenditure cuts. Once again the poor pay the price. This on the basis that such cost cutting increases job creation: a mere assertion not supported by outcomes anywhere, so far as I can see.
Unemployment went up to 12% by 2011. As with Greece the economy performed worse than forecast and GDP fell
Rumania:The loan to Rumania depended on a reduction of public sector wages of 25% and of pensions and benefits of 15%. As in all the other countries considered, short term contracts of employment were promoted: increasing insecurity for those in work,
The IMF assertion that Rumania's employment legislation was too rigid founded on an "employing workers indicator" from the World Bank, which purports to enable comparison of the "ease of doing business" across countries. It seems that the World Bank abandoned this measure 9 months before the IMF imposed these conditions on the basis of it: and the world bank instructed its staff "to refrain from any recommendation based on the previously published EWI “in Country Assistance Strategies / Country Partnership Strategies, Economic and Sector Work, Doing Business Reform memoranda, policy notes and other strategy or analytical". But IMF staff are not World Bank staff, so that is OK. They don't know what they are talking about: but hey, they have an ideology!
I could go on: the report is linked and you can read it for yourself. To me it is perfectly clear that the IMF has no intention of making objective assessments and framing recommendations on the basis of real world evidence and outcomes: they just want to ensure that the poor pay for the folly of the rich, and they will say anything which tends to that conclusion.
