Actions Vs. Words At The IMF

Buried in the avalanche of meaningless press releases from Istanbul is a highly significant item.  Dominique Strauss-Kahn, Managing Director of the IMF,  “has proposed the appointment of Naoyuki Shinohara, to the position of Deputy Managing Director. Mr. Shinohara, a former Vice Minister of Finance for International Affairs of Japan, will succeed Takatoshi Kato.”

This is a disaster.

I have nothing against Mr. Shinohara, who is most likely a distinguished and accomplished public servant.

But the G20 said, at its April 2009 London summit, that (paragraph 20, bullet #4), “we agree that the heads and senior leadership of the international financial institutions should be appointed through an open, transparent, and merit-based selection process.”

And the background briefings, from all sides, stressed that “senior leadership” included Deputy Managing Director positions at the IMF.

To replace one Japanese national with another in this fashion is to break a critical symbolic and substantive G20 pledge – the signal it sends is that the next Managing Director of the IMF will be European, the next President of the World Bank will be American, etc, as they have always been.  This further undermines attempts to rebuild the legitimacy of these institutions.

No doubt, Japan and its G7 allies put great pressure on the IMF to make this appointment.  But the signal this sends to emerging market leaders is evident and, quite frankly, insulting.

It would have been a brilliant gesture, for example, to appoint a distinguished Chinese bureaucrat to this position – in fact, this was the hope of pro-IMF people among emerging markets (and there are still a few).

We are not back to zero in terms of meaningful IMF governance reform.  We are deep in negative territory: All the G7 and G20 rhetoric has been exposed as empty.

By Simon Johnson

20 responses to “Actions Vs. Words At The IMF

  1. Professor Johnson, you say “a distinguished Chinese bureaucrat”. Did you actually write that with a straight face??? Name ONE. Bo Xilai?!?!? You’re cracking me up with laughter dude.

    The Chinese have Marxism pounded in their brains from age 4 to college graduation. Next time you see a Chinese national ask them to explain supply and demand on a graph or decreasing returns to scale and see where that conversation goes. And you want to give them a high position at IMF for etiquette and social graces?? Good luck with that.

  2. So what else is new?

  3. What you say might have been true during the 70s, but nowadays the Chinese practice capitalism in a far purer form than any country in the West.

    The Chinese have always had a pragmatic bent, and whatever they do they throw themselves into in a kind of fury.

    Their “communist party” would make the American Chambers of Commerce seem like raving Marxists.

  4. Also, any Chinese teenager can explain marginal economic quantities in terms of derivatives. Try to find American students who can do that.

  5. It should be noted that neither capitalism nor socialism in practical terms has ever existed.

    The perpetual myth of market innovation owes, at the very least, a polite nod to public investment and research (e.g. the internet…and the list goes on). Politicians and naive commentators continually rave, particularly in the United States, about the “free market” and a “libertarian” economic spirit, without understanding even the most basic of Adam Smith’s tenets (that free markets can only function effectively in an environment in which participants experience absolute liberty, or that corporations are in fact detrimental to an efficient, free economy, etc).

    On the far left, the failed histories of Mao his like blot out the important principles of participatory socialism (aspects of which we can find in our own economic model).

    Our economic frontiers are limited and hindered by constant attempts to organize complex, social interactions into rigid concepts developed centuries ago. It must be our continued responsibility to understand the true natures of the economic systems we debate. If the public is not able to even do that, we will continue to cede self-determination to the natural concentrations of power in our societies, central planners and central bankers, alike.

    Keep up the good work Professor Johnson.

  6. Why is the IMF failure a surprise ? Capitalism has never been about sharing prosperity. Entrenched capitalist powers are not going to go down without a fight.

  7. Larry Kudlow is giddy

    Chinese teenagers and marginal economic quantities in terms of derivatives. Ha!

    Yacker hasn’t seen the same Chinteens I have, with black market Nike’s and fake IPhones. Those are the only marginal economic quantities in terms of derivatives that thieving culture knows about.

    Chinese communists every took capitalism and turn it into a noose to hang American’s with. Brilliant, but deadly for U.S.

  8. Whoa. Thieving culture? Noose to hang America with? You seem to be from an even further distant planet than Ted K.

    The Chinese economy is going down the same path Japan did: get bubble, pop bubble, lost decades. Except they know it, and are trying to stop it, but it’s going to happen anyways.

  9. Just checking in for the exposé on Dark Pools, and the role of organized crime in the crisis.

    Nothing yet?

    Humbly, in addtion to “Remember the Alamo” we now have “Remember Phenix City.”

    Old business: Did we ever figure out if Edward Liddy and G. Gordon were related? Also, how come Manny Maroun doesn’t have a wikipedia entry, and what do Simon and Peter Boone do all day??

  10. Plebeianswillrevolt

    Hello!

    Do any of you economic Einstein’s care to comment on something really scary like GOLD hitting $1,048USD today? Or are you too busy converting your hard currency assets to commodities.

  11. Speaking of words —

    No one knew this or thought it important to mention?

    “The Italians use the squid as a metaphor for the Mafia. Nice choice of words Roger.”

    Anna’s comment from here: https://baselinescenario.com/2009/10/03/a-short-question-for-senior-officials-of-the-new-york-fed/

  12. …and where were the spiders, when the fly tried to break their bones?

    Dude, organized crime took over the economy and the government and now it’s not crime anymore.

  13. I’m busy converting my tomato-ey asset to ragu. You can’t eat gold.

  14. The Koreans eat squid like popcorn at the movies. Coincidence?

  15. Yes… sort of. Reminds me of my favorite comment ever: “Dude, you’ve just outed the establishment.”

    Here’s the thing. I think it’s productive to think in terms of organized crime so that we can continue to crawl up (down) the food chain to the top (bottom) feeders. If you get past the first or second levels of visible, quasi-legal bad guys, you arrive at the murderers, drug dealers, pornographers, etc. This world has a hierarchy; it is based on raw power. The people wielding this power are sociopaths. If you don’t have or aren’t planning to have children, maybe you don’t care. Some people do, and would prefer to leave them a better legacy.

    Great poem, btw, if this is what you were referring to:

    The Spider and the Fly
    By Mary Howitt
    Will you walk into my parlour? said the spider to the fly. Tis the prettiest little parlour that ever you did spy, The way into my parlour is up a winding stair, And I’ve a many curious things to shew when you are there. Oh no, no, said the little Fly, to ask me is in vain, For who goes up your winding stair, can ne’er come down again.

    I’m sure you must be weary, dear, with soaring up so high Will you rest upon my little bed? said the Spider to the Fly. There are pretty curtains drawn around; the sheets are fine and thin, And if you like to rest awhile, I’ll snugly tuck you in! Oh no, no, said the little Fly, for I’ve often heard it said They never, never wake again, who sleep upon your bed!
    Said the cunning Spider to the Fly, Dear friend what can I do, To prove the warm affection I ‘ve always felt for you? I have within my pantry, good store of all that’s nice I’m sure you’re very welcome, will you please to take a slice? Oh no, no, said the little Fly, Kind Sir, that cannot be, I’ve heard what’s in your pantry, and I do not wish to see!
    Sweet creature! said the Spider, you’re witty and you’re wise, How handsome are your gauzy wings, how brilliant are your eyes! I’ve a little looking-glass upon my parlour shelf, If you’ll step in one moment, dear, you shall behold yourself.

    I thank you, gentle sir, she said, for what you ‘re pleased to say,
    And bidding you good morning now, I’ll call another day. The Spider turned him round about, and went into his den, For well he knew the silly Fly would soon come back again So he wove a subtle web, in a little corner sly, And set his table ready, to dine upon the Fly. Then he came out to his door again, and merrily did sing, Come hither, hither, pretty Fly, with the pearl and silver wing, Your robes are green and purple, there’s a crest upon your head Your eyes are like the diamond bright, but mine are dull as lead!
    Alas, alas! How very soon this silly little Fly,
    Hearing his wily, flattering words, came slowly flitting by With buzzing wings she hung aloft, then near and nearer drew, Thinking only of her brilliant eyes, and green and purple hue Thinking only of her crested head, poor foolish thing! At last,
    Up jumped the cunning Spider, and fiercely held her fast. He dragged her up his winding stair, into his dismal den, Within his little parlour, but she ne’er came out again!

    And now dear little children, who may this story read,
    To idle, silly flattering words, I pray you ne’er give heed. Unto an evil counsellor, close heart and ear and eye, And take a lesson from this tale, of the Spider and the Fly.”

  16. (and yes, Prof. Johnson, I did notice the title of this post)

  17. Banastsre Badcat

    UB v MP, you’re a wise dude. And thanks for the entire poem about “The Spider and The Fly” — I’ve heard the first part all my life and was too lazy to find out the rest.

  18. Thanks Banastre (Tarleton?).

  19. This is all about international power, not just the institutional bias and history. The Japanese are touchy and defensive about their relative position in international institutions to an even greater degree than Europeans are. This is particularly because they weren’t represented as a top tier power in post-war institutions and only could claw to the level below P5 on the security council or getting a director position at the Bretton Woods institutions, so losing the positions on that level, particularly when the Americans and Europeans haven’t lost their higher level positions would be rather egregious.