CEPAL, the Region’s Unhelpful Policy Gatekeeper

CEPAL’s data is invaluable, but when it comes to interpretation of the data, CEPAL functions as a gatekeeper for conventional assumptions and prejudices.

By Tortilla con Sal

The U.N.’s Economic Commission for Latin America and the Caribbean is better known in Latin America by its Spanish acronym CEPAL. Founded in 1948, CEPAL reports to the United Nations Economic and Social Council. It plays a fundamental role providing authoritative economic and social research, as well as policy formulation and advisory services to the region’s governments and institutions.

Anyone trying to understand issues of economic and social development in Latin America and the Caribbean finds CEPAL’s data invaluable. But when it comes to interpretation of the data, CEPAL functions as a gatekeeper for conventional assumptions and prejudices, many of which are at least very questionable, while some, like the continuing theoretical reliance on notions of economic equilibrium, verge on the irrational.

Given the abysmal failure of orthodox economic theory to predict the devastating economic collapse of 2007 and 2008, the fact that CEPAL’s analysis sticks to conventional economic theory has a very unhelpful influence on formulating policy options for the region.

So while Alicia Barcena, CEPAL’s Executive Secretary since 2008, has played a leading role highlighting the importance of reducing poverty and inequality in the region, that stance is systematically undermined by CEPAL’s theoretical loyalties. For example, CEPAL supports secretive corporate friendly mega-treaties like the Trans Pacific Partnership while at the same time criticizing corporate malpractice.

In any case, as Andrew Kliman has pointed out, “disproportionate concern over inequality can divert attention from major economic problems like the economy’s failure to rebound from the Great Recession, and what to do about that. And it can tend to divert attention from concrete problems like mass unemployment, people losing their homes, and poverty.”

Kliman’s point, made back in 2013, is of especially poignant relevance in Latin America where community leaders across the region, like Berta Cáceres in Honduras, or James Balanta in Colombia, are murdered for defending their communities against ruthless corporate predators abetted by venal government authorities.

So while CEPAL’s policy insistence on reducing inequality and poverty is important, it is also trivial and even banal in terms of policy recommendations for Latin America and the Caribbean.

For example, CEPAL recommends that countries in the region diversify and industrialize their economies and that they prioritize intra-regional trade, which implies some version of increasing regional integration.

But these policy recommendations have been current for decades. In 2016, the useful and helpful questions involve what varieties of diversification, what kind of industrialization and on what basis regional integration should happen. It would be good to know the value of the experience of the Bolivarian Alliance of the America,  led by Cuba and Venezuela, compared to conventional “free trade” treaties, for example.

A recent paper giving a good presentation of CEPAL’s debatable policy assumptions is its 2015 document “Latin America and the Caribbean in the World Economy. The regional trade crisis: assessment and outlook”. As usual in CEPAL briefings, the paper has excellent data and makes useful observations on issues like trade facilitation, intra-regional trade and the region’s relationship with China. But its framing of the global context offsets those helpful inputs. CEPAL’s paper characterizes 2015 as “the third consecutive year of increasing declines in regional export values; a state of affairs not seen since the Great Depression of the 1930s.

This poor performance reflects the end of the commodity price boom, the slowdown of the Chinese economy, the weak recovery of the eurozone and the lackluster economic activity in the region, particularly in South America.” CEPAL’s summary and the rest of the paper too, leaves out, or downplays stagnation and debt overhang in the private sector in North America and Europe, assigning blame to the public sector, insisting on the relevance of “high levels of public debt in the largest economies”.

CEPAL points in a vague, unhelpful way to “instability caused by the disconnect between financial and real-sector activity” but seems purposefully to ignore the parasitic role of corporate financial manipulation and speculation in suffocating productive investment.

CEPAL does recognize the, literally, counterproductive role of the international financial sector but, focusing on the drop in Latin American and Caribbean exports, suggests that the main problem is that trade surplus countries like Germany or China fear “inflation, an overheating labor market, rising public debt or loss of the positions they have won for themselves in external markets”.

So, CEPAL argues, vulnerable exporting countries suffer falling volumes in a global context of falling prices and this reality requires “policy coordination in the global economy in pursuit of simultaneous expansion in surplus and deficit countries, facilitated by the tendency towards trade reciprocity.”

But it also implies the need for a radical change in rich country fiscal policy instead of the major central banks creating more destabilizing bubbles in asset prices, as they did from 2001 to 2007. It also requires rich countries to finally seriously crack down on the laundering of over US$1.5 trillion through tax havens and brazen offshore tax evasion scams like the notorious “double Irish”.

CEPAL’s own analysis clearly implies the need for radically greater regulation and control of monopolistic corporate financial institutions. CEPAL’s report feints left in direction of fiscal measures, but goes right by ignoring other really fundamental policy needs. The reason for this is clear from the sources they cite for their argument: “Perceptions have shifted over recent years, and the adoption of an expansionary fiscal stimulus by surplus countries (combined with debt relief in deficit countries) is starting to be regarded by analysts as a more effective countercyclical policy option,” according to Summers and Blanchard.

Summers and Blanchard, a couple of obscure academics you might think. But no. They Are Larry Summers, perhaps the key deregulation ideologue ushering in the collapse of 2007-2008 and Olivier Blanchard the IMF’s chief economist from 2008 to 2015. It is almost as if CEPAL, frightened of outright advocacy of fiscal measures to defend the majority of people’s living standards, genuflect before Blanchard and Summers as some kind of alibi to hide behind in case of neoliberal critical flak.

That in itself shows how pernicious the influence of those neoliberal ideologues has been not just in terms of being right or wrong, but in also terms of fundamental democracy, free debate and critical exchange of ideas.

Australian economist Steve Keen notes in regard to the mainstream consensus touted by Summers and Blanchard, “not merely were the ideas coming from a single perspective, most of the major proponents of these ideas came not only from the same University (MIT), and even the same seminar (Class 14462, conducted by Stanley Fisher) … Think of the dominant names in economics and there are a few obvious entries: Ben Bernanke; Larry Summers; Paul Krugman; Olivier Blanchard; and Ken Rogoff. Summers acknowledged all of them (bar Krugman) as classmates from Stanley Fisher’s seminar, while Krugman did his PhD at MIT (as did the other dominant macro textbook author—and ex-advisor to George W. Bush and Mitt Romney—Gregory Mankiw).”

CEPAL’s mission statement suggests it should promote critical debate, but in fact it has generally capitulated to this prevailing sterile elite orthodoxy. Thus its report notes, “The combination of low inflation, real interest rates very close to or even below zero and low growth in the global economy has created a savings glut or a situation of secular stagnation. These two concepts are related, in that a glut of savings necessarily implies that there is no portfolio of productive investments attractive enough to absorb them.”

That is certainly the elite corporate finance view of the matter. No surprise then that CEPAL’s culprit is the old canard of a “global savings glut”. Here CEPAL cites Larry Summers along with corporate stooge Hillary Clinton’s cheerleader Paul Krugman and former Federal Reserve Chairman Ben Bernanke.

But another view might take into account for example, the failure to regulate the sheer corporate greed promoting global malinvestment based on practically free corporate welfare money doled out to monopolistic financial corporations who then purposefully manipulate commodity markets and stocks.

Or another view might note the debt-deflation argument that most rich country consumers are still paying down debt, a phenomenon orthodox economists perversely interpret as “saving”. Nor should one forget persistent systemic fraud, as economists like Joseph Stiglitz and William Black have noted, specifically market manipulation, anti-competitive monopolistic practices, general lack of transparency and outright criminal fraud involving most of the bank members the Federal Reserve’s Primary Dealer Network.

If CEPAL is suspicious of heterodox or dissident opinion even from authoritative figures like Joseph Stiglitz and William Black, try this from the Bank of International Settlements researchers in a paper entitled Global Imbalances and the Financial Crisis: Link or no Link? from 2011: “The role of global current account imbalances in contributing to the recent financial crisis needs to be reconsidered. In particular, we raise two basic objections to the popular ‘excess saving’ view. It fails to distinguish sufficiently clearly between saving, a national account concept, and financing, a cash-flow concept, thereby focusing too heavily on net rather than gross capital flows. And it conflates the determinants of the market and the natural rate of interest rate. As a result, the ES view has little to say about the underlying patterns of global intermediation that contributed to the credit boom and the transmission of the turmoil, and diverts attention away from the monetary and financial factors that sowed the seeds of the crisis”

So even in 2011 orthodox BIS economists were already dismissing the global savings glut excuse for demented Central Bank and government economic policy decisions that drove the crisis and then stifled any chance of a recovery. Here’s what CEPAL has to say about that abysmal policy failure, “In summary, the real economy stagnated after the crisis, while financialization encouraged higher public and private borrowing. In this context, weak aggregate demand and surplus production capacity led the monetary authorities of the developed economies to increase liquidity.”

For some reason CEPAL omits drawing the obvious conclusion, namely, increasing liquidity by cosseting a corrupt financial system was never going to do anything to promote productive investment when consumers were sunk in debt and manufacturers had no incentive to invest even if they were given money for nothing which would only ramp up unsaleable inventory.

Plenty of outstanding economists at the time pointed this out and were ignored. They tended to be the same economists who had predicted the crisis that almost all orthodox economists, including Paul Krugman, Ben Bernanke, Larry Summers, Olivier Blanchard and all, completely failed to predict. Economics professionals like Dean Baker, Michael Hudson, Henry Liu, or Steve Keen predicted the 2007-2008 collapse and prescribed the remedial measures like debt write downs for ordinary people, fiscal measures to maintain consumption and appropriate regulation of outlaw financial corporations.

Instead governments rescued the delinquent banks, allowed them to consolidate their global corporate financial services monopoly even more, failed to prosecute egregious fraud or defend homeowners from predatory foreclosure and, despite all the accumulated knowledge since the pre-World War II depression, then they cut back public spending, contracting the global economy through 2009 and whacking ordinary consumers down even harder. Now they wonder why more productive growth has escaped them.

For so-called emerging market economies, these dreadful policy choices in favor of the global corporate financial elites have created enormous pressure on their currencies’ exchange rates which makes it impossible for them to regain any competitive advantage via devaluation, even if their export markets were holding up, which they are not.

CEPAL suggests that the progress on mega-treaties promoted by the US government on behalf of its corporate owners could inject “greater dynamism into world trade” through 2016, noting that these agreements include “the Trans-Pacific Partnership Agreement, the Transatlantic Trade and Investment Partnership between the United States and the European Union, and the Regional Comprehensive Economic Partnership, which involves the largest Asian economies.” For some reason, CEPAL leaves out the virtually clandestine negotiations on the Trade in Services Agreement which is even more contentious and secretive than the other agreements. TISA involves Chile, Colombia, Costa Rica, Mexico, Panama and Peru and once in effect will make future sovereign regulation of financial services impossible.

A disturbing provision in TISA is that its terms will remain secret from the general public for five years even after it comes into effect. CEPAL does make an apparently reasonable case for the TPP, but leaves out any well informed arguments based on critical research, for example from Tufts University Global Development and Environment Institute. The most damning indictment of the TPP’s proposed supranational governance structure is that it will be beyond appeal and subject to unaccountable development by nominated corporate friendly functionaries so as to create a back door for measures like TISA which CEPAL carefully and inexplicably avoids mentioning despite its tremendous relevance to any advocacy of the TPP.

The main worry about CEPAL’s research are the conventional mainstream theoretical assumptions behind its analysis of the continuing global economic crisis and its remedies. Those assumptions make CEPAL incapable of tackling directly the pernicious role of global corporate financial institutions. Its briefings have great data but leave out a wealth of conclusions derived from well thought out criticism by really outstanding economists, many of whom predicted the crisis of 2007-2008. Instead CEPAL makes obeisance to the gods that failed of Western economics. It is intellectually repressive to ignore the increasingly urgent relevance of ideas from Modern Monetary Theory, like the role of endogenous money, for example, let alone Marxist and socialist economic and social criticism.

Instead of setting out a well informed discussion of broad policy options for Latin America and the Caribbean, CEPAL tends to suppress debate, in contradiction of best practice for the kind of research and policy organization it is supposed to be.

Any truly open minded debate would take seriously the arguments around endogenous money enabling governments to create money like banks do, at the tap of a computer keyboard. But governments would use that money to promote regional integration, infrastructure investment, and technological research and development, especially in relation to environmental technology. If CEPAL were really doing its job then its research team would look at that and explain how to overcome the restrictions placed on the use of endogenous money by the current insane structure and non-governance of international financial markets.

Similarly, CEPAL’s ostensible role should clearly result in discussion of the successful experiences of Bolivia and Nicaragua and Perú against the regional trend.Or again, CEPAL might argue more categorically on behalf of regional victims affected by rich polluter countries refusing at the last Climate Change Summit in Paris to commit to preventing devastating temperature increases.

But instead of that and instead of looking at why and how two ALBA countries have done as well as a free trade poster child like Peru, CEPAL glibly promotes the TPP. For some countries, it may make sense to join the TPP so as to guarantee the most favorable access possible to markets in the ASEAN countries and to consolidate intra-regional trade within Latin America, for others it may not. In order to decide, people in the region need democratic access to the relevant data and documents, currently inaccessible.

Similarly, the theoretical contributions of thinkers like Alvaro Garcia Linera, Bolivia’s Vice-President or Orlando Nuñez Soto, a leading strategist of Nicaragua’s Sandinista government, are definitely highly relevant for any discussion of economic democratization and the role of that democratization in promoting economic and social development in Latin America and the Caribbean. To do truly serious, genuinely open-minded analysis CEPAL needs to break out of the intellectual poverty of the orthodox economics mainstream and take advantage of the wealth of original and creative discussion both within the region and beyond.