IFRS – part of the neoliberal myth?

Globalism Failed to Deliver the Economy We Need heralds a recent article in The New York Times.

It’s written by Rana Foroohar. Here are some extracts:

  • For roughly half a century, our political economy has been based on the governing concept of neoliberalism — the idea that capital, goods and people should be able to cross borders in search of the most productive and profitable returns. Many people associate it with the trickle-down economics practiced by Ronald Reagan and Margaret Thatcher or even the business-friendly economic ideas espoused by Bill Clinton and Barack Obama around financial markets and trade. But the roots of the philosophy go back further.
  • The term “neoliberalism” was coined in 1938, at a Paris gathering of economists, sociologists, journalists and businessmen who were alarmed by what they viewed as the excessive state control of markets after the Great Depression. For them, the interests of the nation-state and of democracy could pose problems for economic and political stability. The voting public could not be trusted, and thus national interests (or, more particularly, nationalism) should be constrained by international laws and institutions so that markets and society could function properly.
  • Global institutions like the International Monetary Fund and the World Bank and later organizations like the World Trade Organization — groups that were essentially about connecting global finance, trade and business across borders — … vigorously advocated the Washington Consensus, a series of economic principles derived from the tent poles of market liberalization and unfettered globalization. These prescriptions generated more growth than ever before; the four years leading up to the 2008 financial crisis were one of the strongest global growth periods of the past half century. But they also created substantial amounts of inequality within nations.
  • How? In part because money moves across borders much faster than either goods or people. The “cheap capital for cheap labor” bargain struck between the United States and Asia from the 1980s onward benefited multinational companies and the Chinese state far more than any other entities, academic research shows. The Reagan-Thatcher revolution unleashed global capital by deregulating the financial industry, and global trade was fully unleashed during the Clinton era, with deals like NAFTA and the eventual accession of China into the W.T.O., which tipped the balance of policy interests between domestic job creation and global market integration toward the latter. The idea was that cheaper consumer prices from imported goods would make up for flatter or even falling wages (in real terms for many working people).
  • But they didn’t. Even before the pandemic and the war in Ukraine, the prices of the things that make us middle class — from housing to education and health care — were rising far faster than wages. That’s still the case, even with recent wage inflation. The sense that the global economy has become too unmoored from national interests has helped fuel the political populism, nationalism and even fascism (in the form of Donald Trump and the MAGA movement) that we are grappling with today. It’s a bitter irony that the very philosophies that were meant to tamp down political extremism did just the opposite when taken too far.

The article concludes: “One of the most persistent neoliberal myths was that the world was flat and national interests would play second fiddle to global markets. The past several years have laid waste to that idea. It’s up to those who care about liberal democracy to craft a new system that better balances local and global interests.”

Could IFRS be a symptom of these same neoliberal myths, by its nature inherently hostile to liberal democracy? At the time of its great expansion, almost two decades ago now, the case for IFRS was often stated in border-busting terms. For example, take then-Chair David Tweedie, speaking in Toronto in 2008:

  • There is clear momentum towards accepting IFRSs as a common financial reporting language throughout the world. Today, multinational companies are benefiting from reduced compliance costs associated with the removal of the need for the consolidation of different national accounts into a single statement to meet their home country’s requirements. Investors are able to make comparisons of companies operating in different jurisdictions more easily. Regulatory authorities are now more able to develop more consistent approaches to supervision across the world.

(By the way, Tweedie also opined that “there is reason to believe that IFRSs will be adopted in the United States by US companies in the near future,” but never mind). Could it be that the effects noted by Tweedie, even if they’ve been delivered in something like the envisaged form, were actually bad: that, for instance, reduced local compliance costs of the kind he mentions just feed into the overcharged corporate momentum described in the article? If regulators are indeed able to develop more consistent approaches to supervision, then why, fourteen years later, does everything seem so inadequately regulated? If investors are so well served by enhanced ease of comparison, then why is the market still such a volatile mess, serving the egregiously over-paid people at the top of the corporate ladder incalculably better than stakeholders as a whole? Why is it all just so across-the-board disappointing?

Of course, this is merely a thought experiment. No doubt it can and should be argued that in the absence of IFRS, certain aspects of things would be even more dysfunctional than they are now. But the notion that things could be worse doesn’t in itself make them any better…

The opinions expressed are solely those of the author

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