“The big question,” began Ruben Lamdany, the deputy officer of the independent evaluation office of the IMF (International Monetary Fund), “is why one thousand of the world’s best economies and minds can go so wrong.” Lamdany was joined in discussion of the 2008 recession by University of Toronto professor Louis Pauly at a CIGI event last Tuesday titled “Groupthink and Overconfidence: Predictive Failures in the Global Economic Crisis.”
Lamdany presented a study conducted by the IMF investigating the reasons behind their failure to alert the world to the oncoming financial catastrophe. “We [the IMF evaluation office] have identified three main clusters of areas to change: governance changes, changes to promote openness and candour … and improving analytical frameworks,” he explained.
One of the main issues faced by the staff of the IMF, Lamdany claims, is the tendency of its professionals to resort to “groupthink.” The atmosphere of the IMF is one in which discrepancy from the status quo is not necessarily encouraged. Staff and policies are often set in an unchanging, narrow view of the world. Lamdany continued, “You look at the world and you are so convinced that you know what is going on, that everything that happens supports your views, even when it is the opposite.” IMF staff, he said, were blinded to the notion that such advanced economies as the United States could experience such a high level of devastation.
Pauly, who is also Canada’s Research Chair in Globalization and Governance, does not believe that the considerable criticism of the IMF and its sporadic success are sufficient reasons to eliminate it. “The world economy that greater openness has produced remains fragile and full of injustice, but it’s hard to imagine the architects of Bretton Woods being entirely displeased with their legacy,” he commented. “We have a responsibility to keep it going, it seems to me.”
Despite acknowledging the less than ideal state of the global economy, Pauly had lofty dreams for the future. “I trust not entirely on realistic,” he said, claiming that sustaining the middle powers, acceptance of China through mutual respect and environmentally sustainable growth would help lead to a secure future.
Pauly also placed a great deal of emphasis on increased US fiscal responsibility. He believes that the US has traditionally solved its imbalances by “exporting the costs of change,” a system which the world has bought into because it’s part of the deal in exchange for the collective good that they provide, which is global security.” In an era of fast emerging economic powers, Pauly argued it’s time for the US to accept its changing role and adjust its economic flamboyance accordingly.
Concluding the evening, Ruben said optimistically, “Hopefully this process [of evaluation] … will bring those countries to be engaged, have a stake in the institution, and make this universal institution truly universal.” In a broader sense, it is encouraging that discussions on IMF and global economic reform are occurring, opening up potential for a more inclusive international financial system.
