Friday, October 31, 2014


Christine Lagarde, Managing Director, International Monetary Fund, in her Acceptance Speech for Foreign Policy Diplomat of the Year Award, 29 October, Washington, D.C.
“Africa: Economic Diplomacy and the Need for a New Multilateralism”
… “Future Challenges and the New Multilateralism
… “One thing is certain: 21st Century challenges demand global solutions.
…. “The model of Adam Smith's "invisible hand"--where pursuing one's own self-interest would also serve the collective interest--requires solid institutional underpinnings, such as the rule of law, a currency, a competition watchdog, to name a few.
On the international scene, these underpinnings are more tentative. Multilateral institutions such as the UN and the IMF have provided a global framework for the cooperation of sovereign states, and they have served their purpose well.
Yet, to me it looks more and more as if Adam Smith's model is being turned upside down.
What do I mean?
Given the high degree of interconnectedness in the modern global economy, many of the challenges we face represent a collective threat, and call for a collective response. Rather than collective good arising out of self-interested action, it is only by acting collectively that an individual country's self-interest can be achieved.
Christine Lagarde, once hailed as the great hope of the IMF on her appointment, clearly brought with her a lot of ideological baggage drawn from the deep pool of modern IMF economist-believers in the almighty “invisible hand”, falsely attributed to Adam Smith, as the opiate of most economic policy wonks. The other lot among the leftist, big government proselitizers(?), denounce the IH believers with the same fervour that their high-priests denounce markets and capitalism. Lagarde obviously has mastered her brief to avoid provoking controversy.
Lagarde suggests bridging the gap between the stand-offs common in economic discourse today - ‘markets not governments’ versus ‘governments not markets’ - with nods to both theologies, while legitimising the “model of Adam Smith's ‘invisible hand’ with the “solid institutional underpinnings” by “acting collectively” so “that an individual country's self-interest can be achieved”. 
This is a master example of drafting just enough anodyne wording to baffle readers with empty waffle that means next to nothing. I once served as a member, later chairman, of the UK’s Standing Committe for Social Science in UNESCO, and witnessed many examples of such skilled drafting by civil servants, written to avoid antagonising friends and allies of the UK in the United Nations in the depths of the Cold War.

My own pragmatic preference is for “markets where possible, the state where necessary”, a stance that would have been acceptable to Adam Smith, judging by his Moral Sentiments and Wealth Of Nations..


Post a Comment

<< Home