The IMF’s Reconstruction of Economic Orthodoxy since the Crash

by Ben Clift*

Analysing how the International Monetary Fund (IMF) contributes to prevailing understandings of sound economic policy reveals how economic orthodoxy is historically contingent, and throws into relief the malleability of economic policy credibility. These indirect IMF attempts to exercise power are important yet understudied. Fund views evolve through a complex and political process which can be best understood by grasping the organisational and sociological dynamics of the Fund’s internal workings and its hierarchical structure. My new book The IMF and the Politics of Austerity in the Wake of the Global Financial Crisis (Oxford University Press, 2018) delineates how the IMF uses its knowledge bank, expertise and mandate for surveillance and coordination to act as a global arbiter of legitimate policy. It finds that which economic ideas are drawn on by the IMF, and how, to inform and underpin their economic policy analysis and recommendation has important implications for governments’ economic policy space.
Those who can make authoritative knowledge claims, such as the Fund, enjoy a privileged position within the intersubjective process of constructing economic rectitude. Indeed, the IMF has long been in the business of developing and corroborating a prescriptive discourse regarding appropriate (and more importantly inappropriate) economic policy. My research analyses how the IMF’s approach to fiscal policy has evolved since 2008, and the role played by the IMF in shaping advanced economy policy responses to the global financial crisis and the Eurozone crisis. As such it makes a novel contribution to understandings of the Fund’s role within the politics of austerity.
The book is interested in the politics of austerity, and one of its central aims is to explore the assumptive foundations underpinning economic policy positions of the Fund and others since the crash. It reveals in novel depth how the premises of Fund economic policy thinking have been revisited by key Fund figures including Managing Directors and the Chief Economist– often incorporating somewhat unconventional elements from within the Fund’s repertoire of economic thinking. There has been a notable rehabilitation of Keynesian insights, economic ideas which have long been accreted into IMF thinking and practice.
The approach taken in the book pulls back the veil on the politics of economic ideas both within the IMF and in the IMF’s interactions with major advanced economy governments. It combines in-depth content analysis of the Fund‘s vast intellectual production with searching interviews with a wide range of key Fund economists and senior management involved in the development and advocacy of Fund fiscal policy recommendations. Integrating close textual analysis with extensive interviews, it comes close to inhabiting the “lived in” space of IMF debates.
In doing so, it reveals the repertoire of IMF economic ideas, accreted into its practice over many decades, to be broader than generally appreciated. Fund economists see themselves as non-doctrinaire, pragmatic policy economists – drawing a broad array on ideas and schools of thought (from the Keynesian and New Keynesian to the decidedly anti-Keynesian ‘Real Business Cycle’ theory arising out of New Classical Economics) according to the policy context and economic conjuncture. One striking finding is the broad range of policy ideas and positions the IMF has both advocated and reconciled to (New Consensus) mainstream economics. For this reason, understanding Fund ideational evolution as paradigm change has limited explanatory value.
The book substantially revises our understanding of the IMF’s economic policy thinking and its effects on the room to manoeuvre enjoyed by governments. The IMF is not beholden to an outmoded ideology in the Washington Consensus, nor is it simply applying a one-sized fits all Neo-Classical model to macroeconomic policy debates. Rather, the Fund is engaged in pragmatic and reflexive processes of what John Campbell calls ‘bricolage’, its ideas evolving to retain relevance to and ‘traction’ within pressing economic policy debates.
The analysis opens the ‘black box’ of internal Fund debates and practices, and situates these within internal IMF power relations to develop a novel theory of ideational change in international organisations. This delineates institutionally mediated cognitive filters – such as the Fund’s scientific and technocratic culture and its existing body of economic policy knowledge – as a precursor to specifying mechanisms of change. It highlights how these cognitive filters shape how actors make sense of their environment and their role as pragmatic policy economists. These theoretical underpinnings of the book enable it to unearth how a reflexive Fund sees itself as increasingly ‘open-minded’ and keen to learn lessons and correct short-comings of past crisis responses. Establishing the conditions of ideational evolution through mechanisms of change helps explain how prevailing economic ideas within the IMF can and do change. It also accounts for which economic ideas prevail and why.
Another theme of the book is that economic ideas, even when espoused by technocratic and self-avowedly ‘scientific’ institutions like the IMF, are always rooted in understandings of the principles of political economy – normatively-informed views of how the economy and policy work. These relate to crucial issues such as the nature, propensities and appropriate roles of state and markets, and what economic policy can and should do. It comes down taking a position on a spectrum of views about how far the market, left to its own devices, will likely deliver the most efficient outcomes, and to what extent (and under what conditions) public power should intervene to improve the growth and economic stability.
It is, broadly speaking, the same ideological debate which pitched Keynes against neo-classical economic orthodoxy in the 1930s. This underlines the political role played by the Fund in its efforts seeking to shape economic policy conduct in selecting and foregrounding particular economic ideas and insights. As noted above, economic orthodoxies and conventional wisdoms are built upon contingent social constructions of economic assumptions.
Another contribution of the book is to provide a framework for understanding the successes and failures of IMF efforts to wield influence. Fund actors were motivated by a desire to be on the ‘right side of history’ and to counter what they saw as the mistaken premises of austerity. Had their counsel been heeded more closely, the ‘Great Recession’ may not have been so prolonged or deep. Yet the IMF was limited in its ability to gain ‘traction’ amongst policy-makers, and induce changes to policy settings of governments. This led to policy approaches, in the Fund’s view, overly focused on debt and deficit reduction to the detriment of economic stabilisation, growth, and equity.
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* Ben Clift is Professor of Political Economy and Deputy Head of the Department of Politics and International Studies at the University or Warwick, UK. His wider research interests lie in comparative and international political economy, and he has published widely in leading politics and political economy journals on the IMF, French and comparative capitalisms, the politics of economic ideas, economic policy autonomy, and the British and French politics of austerity.