Sclerotic IMF and OECD are past their use-by date

Every time I read an utterance from the managing director of the International Monetary Fund or a new research report from the OECD, I invariably groan.

The truth is that these international organisations have had their day, particularly the OECD since it basically does nothing save for issuing highly dubious but always politically correct recommendations that are widely ignored. These days green, gender and inclusive are the hallmarks of all OECD output.

The Paris-based organisation vainly has tried to invent a real role for itself by establishing a form of international co-ordination of tax revenue-raising — the so-called base erosion and profit shifting project.

But the only thing that has been achieved is the revelation that the OECD is an extraordinarily strong advocate of high taxation.

Can I mention that the OECD regards Britain and Sweden as tax havens, given their recent decisions to lower their rates of company tax?

The BEPS project will never succeed, mainly because it is not in the interests of the Americans to have their multinational companies pay the rates of taxation demanded by some developed economies. Consistent with its advocacy of big government, the latest concern of the deeply corporatist OECD is the ability of informal workers — code for sharing economy — to escape the tax net. It thinks there are cunning ways of dragging them into the net without undermining the reasons these workers operate in the ways they do. I’m not so sure.

While the reputations of the IMF and OECD — I could name some other international organisations as well — have been in free fall for many years, the rate of acceleration has increased in recent years.

Part of their problem is their weak corporate governance. That the IMF’s managing director position is reserved for a European speaks volumes for the fact this organisation is past its use-by date. Since when was Europe the centre of the world economy and international finance? And recent appointees to the position have had suspect backgrounds, to say the least.

Mind you, the OECD is not far behind, with the incumbent director-general, a Mexican, recently reappointed until 2021. He was first appointed in 2006. The fact the member countries, including Australia, could vote for his reappointment last year shows what a sclerotic organisation the OECD has become.

After the director-general’s reappointment was announced, the French government declared: “France will continue to rely on the OECD’s expertise in order to develop and implement ambitious reforms aimed at building a competitive economy that will generate employment and will continue to undertake efforts to achieve fairer and more effectively regulated globalisation.”

Talk about a lot of tosh. Can I mention that the French economy is one of the weakest in the eurozone?

But a recent high point (should that be low point?) of the spectacular missteps taken by the IMF and the OECD relates to their hysterical, dishonest and malign advocacy of the Remain case in the recent Brexit referendum. Using the veil of providing expert opinion — just concocted mumbo-jumbo — both organisations became willing participants in a matter they should have left well enough alone.

The British economy would immediately go into recession; there would a financial crisis; the pound would permanently sink; there would be severe budget austerity: all these warnings were uttered by the IMF and the OECD. You might say their contributions were made at the behest of Britain’s Cameron government, but that would make their intervention even worse.

It has now turned out that Christine Lagarde, managing director of the IMF, has had to issue an apology to the British government for its extreme warnings and to admit that the fund’s prognostications, in all likelihood, will not eventuate.

And let us not forget that the IMF has form when it comes to these sorts of things. It already has had to say sorry to the British Chancellor for the criticism that was levelled at the government’s efforts to repair its budget — the IMF prefers to use the term austerity. Rather than being sent into some downward death spiral as the IMF had predicted, the British economy has been among the top performing economies.

To further illustrate the depths to which these organisations have sunk, consider the crazy advice of the IMF is giving to countries with “fiscal room”.

Keynesianism clearly has run amok in the organisation and its received wisdom is countries that can should add to their level of government debt to stimulate economic growth.

I really wonder whether this is some sort of joke. After all, the countries without any fiscal room — and there are plenty of them — have tried this trick; it has failed and they are facing very high rates of unemployment and sluggish growth. Think Greece, France, Italy, Portugal and several other European countries. Note also it has been revealed recently that the IMF breached its own rules when it provided financial bailouts to Greece, Portugal and Ireland.

The report of the fund’s internal audit of the processes leading up to these bailouts is excoriating. It talks about a “culture of complacency”, “superficial and mechanistic analysis” and “ad-hoc taskforces”.

These three countries were allowed to borrow more than 2000 per cent of their allocated quota (more than three times the amount allowed under the IMF’s rules). Lending to these three countries accounted for 80 per cent of all IMF borrowing between 2011 and 2014.

It was a case of the IMF desperately trying to ensure that the eurozone didn’t break up. Needless to say, the non-European members of the IMF have been less than impressed.

At the recent G20 meeting of finance ministers in China, attended by our own Scott Morrison, a quite bizarre paper was presented by the OECD arguing that higher taxation, particularly the slashing of tax concessions, could promote inclusive growth.

Here’s the thing: taxation is a drag on economic growth, although some types of taxes are worse than others. Moreover, the design of taxation must treat savings and investment differently from current income and consumption.

I’m assuming our Treasurer took no notice of the OECD paper (supervised by a former Australian Labor politician, no less — David Bradbury). Although given the weak advice Morrison receives from Treasury these days, he may well have lapped it up. After all, we know he is a big spending, big taxing kind of guy.