THE IMF, DEMOCRACY, AND EQUALITY...........A NEW WASHINGTON CONSENSUS?

Understanding the way the IMF thinks is important for countries  like Ireland which depend on  funds provided by the IMF to pay for  public services. 
I attended some meetings in the IMF in Washington recently to discuss the impact the economic crisis is having on fairness within societies, and in particular the impact of the  type of measures the  IMF recommends to countries to help them get, or  keep, their  finances in order. In the past the IMF has been criticised for imposing programmes that focussed simply on  balancing a country’s books, and ignoring the impact on jobs, equality or growth.
Everyone understands, of course,  that the poorer people are, the more they depend on the Government to pay  for their basic health, educational and other needs. So the poorer people are, the more it is in their interests that Governments are, and remain, solvent, because insolvent Governments cannot help anybody.  An insolvent Government cannot provide any  healthcare, education , or unemployment assistance.
But the IMF is increasingly coming to realise that, in helping countries back to solvency, it also has to take account of the social impacts of the inevitable austerity measures it proposes.
 Badly designed programmes, that cause undue social hardship, undermine essential political support. If some groups suffer much more than others, or if inequality is increased, that makes it harder to restore financial health quickly.   The IMF has to design its proposals so that they   allow the economy to return to growth as soon as possible because growth increases tax revenues, and that helps balance the books.
I was told that the IMF has recently set up a “Jobs and Inclusive growth” working group to work out how best to  ensure that  fairness and growth  are incorporated into austerity programmes.

 
 A PARADOX.....INEQUALITY HAS BOTH REDUCED, AND INCREASED

 
Inequality WITHIN most countries has increased in recent years, although inequality BETWEEN  countries has dramatically reduced .
 Inequality between countries has become less because emerging economies are catching  up, and economic  growth has at last returned to  Africa .
 In some senses, growth in poor countries has contributed to inequality in  richer countries because  has led to additional demand for the  limited amount of  food and  fuel available in the world  This   has driven up prices, which in turn has added  to problems for less well off consumers in traditionally better off countries .
There are some exceptions. In Brazil, inequality has reduced because the Government has  transferred cash  direct to families on condition that  they send their children to school. This has reduced poverty, and dramatically increased duration of school attendance from an average of four, to an average of nine, years by each Brazilian child.
 In contrast, despite the enormous strides forward by everybody, inequality has greatly increased in China. Other developing countries spend more on indiscriminate fuel subsidies that are enjoyed by rich and poor alike than they spend on health services.
Income inequality has many causes.
 There is a “celebrity “effect.  A firm will pay extra to recruit a high flyer from a rival firm, and that adds to inequality. 
Certain specialised skills can command premium pay rates.
 Incentive schemes boost production, but they also add to inequality.
 But too much inequality undermines the consensus on which a successful capitalist economy rests. These are issues that the IMF understands and this should help countries find the right balance  for their own countries.

A REFLECTION AT EASTER TIME

I was invited to give a short reflection on what my faith means to me as a lay person in the Cathedral of Christ the King in Mullingar, Co Westmeath on Holy Thursday evening. This is the text of what I said;

“The faith was one of the great gifts afforded to my generation, who were born in Ireland in the years after the Second World War. It is a gift we have an obligation now, to pass on.

Our faith tells us that there is a God, that we are not alone in the universe. We should not be arrogant. We should respect His creation. We should leave the earth in a better condition than we found it.  There is something out there much bigger than us, so we must keep our troubles in proportion.

Our faith tells us that God created each one of us as individuals, that we are not mere accidents of genetics, and that He cares for each of us, as individuals. Our life comes from Him, and it is not ours to manipulate, or take away.

Our faith tells us that there a life after our death, we do not simply pass away into nothingness. We have to give an account of ourselves.

But our faith also tells us that God sent His only Son to die on earth, so that our sins would be forgiven, and that we might live.

These beliefs are, I contend, as important to the living of a good life now, in the twenty first century in Ireland, as they ever were at any time in our country’s long history.

As Pope Benedict said “Deeds without knowledge are blind, and knowledge without love is sterile”. Science, and material progress are only means to an end, no more. They are not why we are here on earth.

Our faith helps us answer the really difficult questions, questions which, if left unanswered  can lead to despair, nihilism  and sometimes even  to suicide 

“Why are we here?  “

“What is the meaning of my life?”

Inability to answer those questions, leaves people with a great emptiness at the heart of their lives, and that is why faith is such a gift. It enables us to answer the truly important questions.

Our faith, as Catholics, reminds us that our obligations are universal, to all humanity, not just to our own family or nation. As Pope Pius the eleventh reminded the world in 1922, even patriotism must be “kept within the laws of Christ”  

And we must never think we know it all. Our reason is a gift from God, and we must use it to examine our own lives, our faith and our failings, to examine our conscience, to use a very old fashioned phrase. Perhaps if we did that more often, we would not need so many regulations and regulators.

The whole concept of Human Rights has a Christian root. If we believe God created each one of us, that provides us with a solid basis for respecting the human rights of all other people, who , as  Christians, we believe were also created by God.  We thus  have a solid, and rational basis, for , for example, respecting their  right to Life from conception to natural death,  and also for helping to eliminate easily curable diseases, like malaria, that cause  children to die prematurely. 

Above all our faith tells us that we should follow the example of Christ, and forgive others who have wronged us. Forgiveness is not something that comes naturally. In fact it almost goes against nature. But we do it because we believe that Christ died, so that we in our turn may be forgiven, and because He told us to forgive. 

We must deplore the sin, but we should not shun the sinner.

Vengeance does not cure the injury to victims. Sometimes it makes it worse.  

Retribution is not Christ’s way.  No, that hard and unnatural thing, forgiveness , is Christ’s way.

It would help Modern Ireland, with its record prison population, and its media in relentless search for someone  to blame ,   it would help it a great deal, if it could  remind itself,  this Easter, of  the true meaning of Christ’s life, and  of the  meaning of His death-forgiveness, letting go, and rising again.

THE FRENCH PRESIDENTIAL ELECTION

I was in France this week,  and had a chance to have a closer look at the  French Presidential Election Campaign.
It is a two round election, with only the top two in the first round, contesting the second  round three weeks later.
At the moment,it is likely the two in the  second  round will be François Hollande, the Socialist(now on 27.5%) and Nicolas Sarkozy (now on 29.5%).
The third and fourth candidates, Jean Louis Melanchon of the  Left Front, and  Marine  le Pen of the National Front are both on 14%, so neither of them is likely to overtake the front runners. Francois Bayrou, the Centrist candidate, is on only 10%.
When voters are asked who they would vote for in a straight fight between Holland and Sarkozy,  they plump for Hollande  by a margin of 8 points.
This is because Hollande  picks up a bigger share of the eliminated candidates’ votes.  For example, Hollande has a margin of 81/3 among Melanchon’s voters, and 40/32 among Bayrou’s.   Sarkozy beats Hollande by 49 to 16 among  Le Pen’s electorate.
Sarkozy’s best chance to win is if he can convert Bayrou’s voters to his  cause, possibly by offering the Prime Ministership to Bayrou, while still holding on to the National Front electorate. This would not be an easy task, because there is little or nothing in common between Bayrou’s electorate and that of the National Front
Some of the campaign debate is about taxing the rich. This is in response to the fact that incomes at the top in France have risen faster than incomes in the middle and lower range.
Clamping down on Islamic militants, and employing more teachers, are other recurring themes.
The fact that France has an excessive budget deficit, has lost competitiveness vis a vis Germany, and as a result has a big trade deficit, is not getting attention from the big parties.

FRANCE’S LOSS OF COMPETITIVENESS

Hourly labour costs in France are now 10% higher than in Germany , whereas ,in  2000, they were 8% lower.
The State in France spends 56% of GDP. Deductions from wages to pay for health and pensions (the retirement age is only 62)  are extremely high and deter job creation. Yet French politicians blame things like the Irish 121/2% tax rate for their problems in attracting investment, rather than the cost of employing people in France itself.
If Hollande wins, he could find himself dependent on Deputies from the party of the Left Front, who favour a complete ban on redundancies, and a 100% tax rate on incomes above 350,000 euros. Hollande himself already favours a top 75% tax rate, and an increase in the wealth tax.
France has a revolutionary tradition and a passionate belief that political action can change things. The difficulty is that globalisation, European integration, and accumulating Government debts,  have reduced political options more than French politicians are willing to  admit.

FREE MOVEMENT OF CAPITAL IGNORED IN THE DEBATE

The policies of the French Left would be very difficult to implement, because as long as France continues to allow free movement of capital, people who feel they are being overtaxed can simply leave the country, and take their money, and their factories with them. 
Free movement of people, and of capital, are requirements of EU and euro membership, and have allowed France to develop world class companies, like Pernod Ricard ,which owns Irish Distillers.
France  is prepared to take the benefits from globalisation, but has not accepted that these benefits come with limitations on what is politically feasible.  
 I believe that the unreality of the debate in France about its public finances, and about its true economic options, could become a threat to the future of the euro.