Mr. Speaker, I had the preeminent privilege of talking to the Honorable Barney Frank just recently, the former chairperson of the Financial Services Committee. He called to my attention a speech made by the Honorable Maxine Waters, who is…
Mr. Speaker, I had the preeminent privilege of talking to the Honorable Barney Frank just recently, the former chairperson of the Financial Services Committee. He called to my attention a speech made by the Honorable Maxine Waters, who is now the ranking member of the committee.
This speech was a keynote speech at the launch of the Global Financial Governance and Impact Report. This is a very insightful message accorded by the Honorable Maxine Waters. It is, in fact, a critique of the World Bank, the IMF. She goes into the global sovereign debt restructuring issue, and she talks also about the problem of growing inequality.
I would invite anyone who is interested in learning more about what I call the ``Waters Worldview,'' to peruse this document.
Chairman Frank was eminently correct when he suggested that this might become a part of the Congressional Record, and I will place it in the Record tonight.
Cong. Maxine Waters Keynote Speech at the Launch of the ``Global Financial Governance and Impact Report'' by the New Rules for Global
Financial Coalition
Introduction
I'm very honored to be invited here today by the New Rules
for Global Finance coalition to talk about governance of the
international economy and the role of the world's major
economic institutions in helping to shape and manage the
global financial system.
First, I'd like to say that I very much welcome this report
by the New Rules coalition and the contribution it makes in
calling attention to one of the most challenging issues we
face today--how do we manage the global economy and how do we
make our existing international institutions more effective
in helping to preserve global stability and promote
sustainable growth in a way that is broadly shared?
In a world of sovereign states, the underlying challenge to
effective global economic governance originates from the
absence of a single global entity responsible for overseeing
the system and establishing the rules necessary for its
operation.
The core infrastructure of the global economy will need to
be based--in my view--on effective national rules coupled
with increased international cooperation among nations, both
through informal channels and through established
multilateral institutions.
Global Economic Institutions
Given the importance of our global economic institutions in
these efforts--and the fact that these institutions have no
system of direct democratic accountability--it is all the
more important that there be confidence in their governance--
and that they be transparent and accountable.
Particular attention should be paid to the effectiveness of
their policies and the impact they have on developing
countries.
Any examination of these institutions should first
acknowledge how much progress they've made in many areas over
the past 20 years--in large part due to pressure from civil
society and individual governments. This is particularly the
case with regard to the Bretton Woods institutions. Whatever
deficiencies people might identify or perceive, one thing the
international financial institutions cannot be accused of is
being indifferent to pressure or impervious to change.
Having said that, I believe the first set of governance
reforms we need at the Bretton Woods institutions is a more
effective voice for developing countries. These countries now
represent a much larger proportion of world economic activity
than when the World Bank and the IMF were created in 1944.
Voice and representation reforms are imperative in order to
re-establish the credibility of the Bank and the Fund as
truly international institutions contributing to growth with
equity and stability for all countries.
World Bank
I believe it is very much in our interest that the World
Bank--as the world's premier
development institution--remains strong, credible and
effective.
One of the important contributions the Bank has made to the
vitality of development efforts is its emphasis on good
governance--its commitment to democratic values and
inclusive, participatory decision-making.
Inspection Panel
In fact, twenty years ago the Bank became the standard-
bearer for democratic accountability at the multilateral
development institutions by establishing the Inspection
Panel. This marked a very important advance in the governance
of international institutions.
By creating an independent forum through which ordinary
citizens who felt disadvantaged by Bank projects could submit
their complaints and see them addressed--the Bank gave voice
and standing to affected people. For the first time, an
international organization provided a means through which
individual citizens could hold the Bank accountable to its
own standards.
Today, the Inspection Panel continues to contribute in
important ways to project quality and improved development
outcomes.
Racial Discrimination
But the World Bank can only be effective in conveying a
message of good governance if it is seen as having good
governance itself. There must be a belief that its own
governance conforms to the standards that it demands of
others--including standards relating to the choice of
personnel and due process.
One of the Bank's most important assets is its human
capital. It has created one of the most talented and
qualified bureaucracies around the world. But the Bank has
some serious work to do to ensure that its processes for
hiring, retaining and promoting staff are free from
discrimination. It must also ensure that staff have access to
a justice system that they can trust will be fair and
impartial. This is an issue that I will continue to follow
very closely.
Doing Business Report
Another area where I'm optimistic we'll see permanent
change is in the World Bank's annual ``Doing Business''
report, which ranks countries according to their
attractiveness to business.
Several years ago, the Financial Services Committee learned
that the ``Doing Business'' report included a labor index--
the ``Employing Workers Indicator''--which downgraded
countries in the rankings for any and all labor protections.
This included factors such as having a minimum wage, maximum
working hours, vacation days, or maternity leave. It was
clear this had to change.
Another area of concern in the Report was its ``Paying
Taxes'' indicator--which gave countries a higher rating based
on how close to zero their corporate tax rates were. In
effect, this meant that the World Bank's guidance to
developing countries was to gut labor protections and shift
the funding of all government functions to workers and
households. Of course, this would make it more difficult to
fund social safety net programs, build a middle class, or
empower workers. This was odd advice for an organization
supposedly devoted to ending poverty.
International labor groups such as the AFL-CIO, the
International Trade Union Confederation, and the ILO all
tried in vain to convince, shame, or bully the World Bank
into eliminating the ``Employing Workers'' index.
After our Committee held a hearing on the subject several
years ago, we made it clear to the World Bank that its
funding could be very, very slow in moving forward through
the committee until this problem was resolved. The outcome
was that in 2009, the World Bank suspended the ``Employing
Workers Indicator'' from the ``Doing Business'' rankings--and
it created a working group to develop a new indicator to
measure countries' adherence to core labor standards.
I'm confident that the anti-worker aspects of the Report
will soon be permanently abolished altogether. Not doing so
would greatly undermine the Bank's legitimacy and its
relevance in the fight against global poverty.
International Monetary Fund
With regard to the IMF, I first want to thank Ms. LaGarde
for her willingness to engage with me directly on issues that
have been of particular importance to me. And I want to
commend her leadership in focusing as much time and energy as
she did on the country of Jamaica when the world was
otherwise so focused on the turmoil in Europe.
I believe the IMF has a very legitimate and indispensable
function in the global economy--in monitoring the world's
economies and responding to countries facing balance-of-
payment crises.
One mark of the vitality of an institution, in my view, is
its ability to admit when it was wrong, to say that it had
misjudged some things and made mistakes. The IMF has done
that, and I think that adds to its legitimacy. For example,
after the East Asian financial crisis in the late '90s, the
IMF admitted that it was wrong in imposing too much
austerity, which exacerbated debt crises.
Over the past decade, the IMF has tried to pay more
attention to the social aspects of its programs, including by
protecting social safety nets and vulnerable parts of
society.
Last December, the IMF marked an end in the era of finance
by reversing its long-held opposition to capital controls.
The Fund announced a new official institutional view
acknowledging that controls on volatile flows of capital
around the globe can play an important role in helping to
preserve the stability of the international financial system.
Moreover, when Congress authorized an IMF quota increase in
2009, which included a limited amount of gold sales, the IMF
agreed to use a portion of the proceeds to help the poorest
countries. This included the elimination of interest payments
on its loans to the poorest countries for five years.
Labor Market Issues at the IMF
However, there are areas where I believe the IMF needs to
do a better job. First, it's clear that the Fund doesn't
always strike the right balance between austerity and growth,
which has had some very negative consequences. Second, I
believe the IMF should stick to what it knows best:
macroeconomic issues that bear most directly on balance-of-
payment questions. For example, it's difficult to understand
why monetary economists at the IMF should intervene in a
country's labor market policies, particularly when they
encourage labor market flexibility measures. Labor market
flexibility is nothing more than a euphemism for measures
that make it easier for firms to fire workers and dilute the
power of unions to negotiate on behalf of workers. I
understand that the IMF has recently recommended a number of
these policies in Europe and elsewhere. The IMF should not be
re-writing the social compact in countries that recasts the
balance of power between labor and capital.
Global Soverign Debt Restructuring Mechanism
On a positive note, I'd like to add my very strong support
for recent work at the IMF, and elsewhere, to study and
encourage a more efficient approach to sovereign debt
restructuring.
The issue of sovereign debt is back at the center of
economic policy debate. This is a result not only of the
global crisis, but also because of recent court rulings that
would give greater leverage to vulture funds, which could
undermine future debt restructuring efforts.
I favor an approach that would establish a formal,
institutionalized, and politically recognized procedure for
restructuring the debt of bankrupt sovereigns. It would
extend legal protections to both the sovereigns and creditors
involved.
Under certain conditions, an international sovereign debt
restructuring mechanism could allow for the orderly and swift
resolution of debt crises in ways that would not only make
crises less costly but would also encourage sovereign debtors
and creditors to act more responsibly in normal times.
There are a couple of principles that I think should
underlie such a mechanism. For example, odious debt should be
written off. This would include, for example, the kind of
debt the Congo had as a result of Mobutu borrowing, or
Ethiopia, which was given loans that paid for arms that
went to Mengistu. Also, when loans were made with advice
from international lenders--advice that was wrong and led
to projects that were poorly designed--the lenders should
bear some of the risk for bad lending.
In any event, the recent court rulings allowing vulture
funds to interfere with Argentina's ability to make payments
to creditors that had accepted a debt restructuring have
caused widespread concern. Both the World Bank and the IMF
have noted that this will encourage holdouts and discourage
creditor participation in future sovereign debt work-outs,
which could pose a very real threat to global financial
stability.
The Problem of Growing Inequality
This brings me to what I think is one of the central
problems with the way we have approached international
economic policy, through our trade agreements and through the
policies of the international financial institutions.
I believe our international economic policy has been too
one-sided--too focused on elevating the interests and
mobility of capital over all other considerations. This was
based on the misguided belief that unfettered markets would
not only create wealth and stability, but would also solve
almost all social problems through a trickle down of benefits
to others in society.
But this isn't what has happened.
Over the past 30 years, we have seen a growing increase in
inequality in the U.S. and in other advanced and some
emerging market countries. This was the case even during
periods of sustained growth. In fact, today the United States
has the highest level of inequality of any advanced
industrial country.
Although some degree of inequality is necessary for the
function of a market economy, since it creates incentives to
work hard and take risks, here in America and elsewhere, we
have more much more inequality than is necessary for
efficiency.
Left entirely to its own, the market system will produce
more inequality than is economically necessary. And excessive
inequality not only undermines social and political cohesion,
it has also been shown to have negative effects on growth.
World Bank research has shown that growth alone is not
sufficient in reducing poverty. You also have to pay
attention to how the benefits of growth are distributed, so
that its benefits are broadly shared. Recent research at the
IMF has shown that inequality can also undermine growth,
because
it weakens demand and depresses consumption.
Now, I believe in capitalism. I recognize the power of
capitalism to create wealth, and I believe markets are the
main engines of wealth creation in our country and elsewhere.
But in order to be truly supportive of the free market, I
believe you must also be supportive of government. This is
because we need to have an appropriate set of public policies
in place to reign in the excesses of the market, to help
maintain stability, and to ensure that the benefits of
capitalism are broadly shared.
In fact, one of the most important lessons we have learned
from the recent financial crisis is that markets must be
deeply embedded in systems of governance. The idea that
markets are self-correcting has received a mortal blow.
Markets require other social and public institutions to
support them. They rely on courts, legal frameworks, and
regulators to set and enforce rules. They depend on the
stabilizing functions that central banks and countercyclical
fiscal policy provide. They also need the political buy-in
that redistributive taxation, safety nets, and social
insurance help generate.
And all of this is true of global markets as well.
What I'm saying is this: free markets and government are
not opposites, they are complements. And if you don't want to
believe me about the importance of government to the free
market system--well, maybe you will believe the markets.
In Congress, one of the biggest supporters of the IMF and
the World Bank has been the US Chamber of Commerce. They
understand the need for effective public intervention when
countries are facing an economic crisis. Business has also
been the biggest supporter of the U.S. Export-Import Bank,
another government function. Finally, last week, after the
Republicans shut the government down, business deployed an
army of lobbyist to Capitol Hill to stress the importance of
getting the government back up and running again.
In Closing
As I conclude my remarks, it occurs to me that perhaps this
might not have been the most appropriate audience to hear my
views on the importance of governance and the necessary and
mutually reinforcing roles of government and markets.
I think perhaps the House Republicans in Congress would
have benefited more from this message than anyone else.
Their insistence on shutting down the government--coupled
with their apparent willingness to allow our government to
default on its debt--reveal just how reckless and dangerously
dysfunctional the Republican Party has become.
Their actions show not only a contempt for government, but
also an indifference to markets and the importance of
stability. Taken together, the Republicans have shown the
country just how profoundly misguided their understanding is
of the role and responsibilities of elected officials in a
representative Democracy.