Finally, the time is ripe for SAI-civil society collaboration

Finally, the time is ripe for SAI-civil society collaboration

It was the summer of 2006. Two key staffers from the International Budget Partnership, Warren Krafchik, our executive director, and Vivek Ramkumar, senior director of policy, attended a meeting co-organized by IBP with the U.N. in Manila. The focus: to build on a paper Warren had authored several years before about the benefits of collaboration between civil society organizations (CSOs) and supreme audit institutions. SAIs, as they are called, are charged with monitoring the accuracy of government reporting on the spending of public money. And increasingly, they also assess “value for money” in government programs—a key interest of CSOs.

Over breakfast one morning—just about an hour before the meeting was scheduled to start—Warren sat at a table with a senior staff member from the South African auditor general’s office. The auditor stated rather bluntly that he was skeptical about such a partnership. After all, he said, SAIs must maintain objectivity and neutrality; they shouldn’t be influenced by members of “the public,” who have their own biases.

“That seemed rather ironic, since the auditor was also reading a newspaper, and thus he was clearly open to being influenced by the publication’s ‘take’ on the news,” Warren remembers. “How is that really different from a discussion with civil society organizations about their experience? You can process that input just as you process what you read.”

Still, the breakfast conversation proved to be prophetic. The time was not yet right.

Fast forward to June 2020 and a well-attended webinar hosted by the Capacity Building Committee of the International Organization of Supreme Audit Institutions (INTOSAI). In that webinar, Kimi Makwetu, the current auditor general of South Africa (the same agency that was so “cool” at that long-ago breakfast in Manila), described relations with citizens as a “new terrain” that is “one of the four strategic pillars” of his institution. In fact, Makwetu recently recorded a video with IBP’s South Africa office and the Social Audit Network, saying this about their work to involve residents of informal settlements in service-delivery evaluation: “We can never be sure if all that should be disclosed to communities is actually disclosed. This helps us get closer to people who are not decision-makers but who are on the receiving end of those services.”

Makwetu is not alone. Also participating in the INTOSAI webinar were representatives from SAIs in India, the Philippines, Jamaica, the Netherlands and Peru.

“We’re seeing a new openness in the audit community to trying to strengthen engagement with the public and civil society,” observes IBP’s Claire Schouten, who coordinates our audit accountability initiative. “We think there is now a great opportunity to build trust, while enhancing our respective roles in the overall accountability ecosystem.”

Edward Olowo-Okere, director of the World Bank Group’s governance global practice, agrees: “Citizens and CSOs help validate audit findings and bring third-party objectivity to the information and findings disclosed by ministries who often don’t have time to deliberate.”

How did we get from that 2006 breakfast in Manila to this reality today? Persistence was key. IBP and many of our partners knew the benefits could be substantial. CSOs can benefit from SAIs’ access to government officials, financial records, and the skills needed to analyze them. SAIs can benefit from CSOs’ greater latitude when it comes to pressuring governments to act.

For example, in Ghana, a national CSO went to court and won a verdict allowing the national SAI to recoup the cost of expenses incurred illegally by government agencies. As a result, the SAI recovered approximately $12 million of misappropriated funds. Another early champion was one of IBP’s partners in Latin America, Asociacion Civil Por la lgualdad y la Justicia (ACIJ). ACIJ mobilized Argentine civil society and media to ensure the government acted on audit recommendations to address the country’s troubled train service. These examples of success helped make the case, over time, for collaboration.

However, in budget work, it’s important to take the long view. It can seem like we take two steps forward, only to be forced one step back. The development of IBP’s work with the SAI community is a case in point.

In 2009, three years after that initial, 2006 meeting, the U.N. Department of Economic and Social Affairs (DESA) secured a slot for IBP to speak at the triennial congress of INTOSAI in Mexico, where our team presented the argument in favor of transparency and public participation for audit institutions. This time, the event produced an invitation from INTOSAI to form a joint initiative to advance the issue.

The field began to evolve more quickly during the last few years. One trigger for this accelerating progress was the engagement of the INTOSAI Development Initiative—which provides capacity-building support—with UNDESA on sustainable development goals. That work provided the SAI community with much greater exposure to the international development world, in which civil society organizations are major players. At the same time, SAIs were increasingly thinking about the value they add to society—the focus of a special INTOSAI working group IBP was invited to join.

Another important influence is the donor community.

“Traditionally, a lot of the funding for technical assistance to SAIs has been channeled through donors, and they are getting impatient about the lack of results,” notes Vivek. “What is the point of improving the capacities of auditors if it is not translating into shifts in government behavior? So, they are receptive to initiatives that look at audit effectiveness from the broader framework of accountability rather than simply satisfaction of international auditing standards.”

Meanwhile, the large, emergency spending shifts required due to the COVID-19 pandemic has given auditors a new visibility. “Suddenly, they have become the institution everyone is expecting to hold governments to account for these huge sums of money being spent on emergency stimulus programs,” notes Vivek. “SAIs are being seen as a lot more relevant than before. Now they need to seize the moment to showcase their value in these troubled times.”

A Facebook post by SEND Ghana to protest a government action against the head of the SAI

Good examples of the need for accountability watchdogs, and their value when they meet the challenge, are everywhere—including the United States. The U.S. Government Accountability Office issued a comprehensive report on the nearly $3 trillion in coronavirus relief spending approved by Congress in March and April. One of the findings: The federal government sent relief payments to almost 1.1 million dead people, totaling nearly $1.4 billion. The International Monetary Fund now is calling for audits to be conducted on COVID spending in every country. Earlier, during another epidemic, Sierra Leone’s SAI burst into national attention when its audit revealed that 30% of funds spent to fight Ebola had not been properly documented.

But audits are only useful if governments act on audit recommendations. This does not occur in many countries, in part due to SAIs’ limited ability to pressure governments to take their audits seriously. IBP believes CSOs can help SAIs secure more government responsiveness. To pilot this idea, IBP is collaborating with SAIs and CSOs in five countries:

  • Argentina: ACIJ is engaging with a coalition of stakeholders to advocate for implementation of SAI recommendations to better prevent, diagnose and treat Chagas disease (a parasite-driven infection), which affects 1.5 million people, especially those living in poverty.
  • Ghana: SEND Ghana is advocating for government action in response to audit reports identifying accountability and coordination challenges in the national program that feeds school children. A citizens’ manifesto, which emerged from consultations with more than 400 people over 10 days was presented to political parties ahead of elections.
  • Nepal: Freedom Forum is collaborating with the country’s SAI to improve management and accountability in local development projects, including road, water and sanitation.
  • Sierra Leone: The Budget Advocacy Network, is working with the SAI to address inadequate water, sanitation and hygiene in schools. Such problems increase the risk of disease and reduce the likelihood that children—especially girls—will attend school.
  • Tanzania: A coalition of local civil society organizations led by the Wajibu Institute collaborates with the country’s SAI to push for rehabilitation of dilapidated school infrastructure that has left 4 million children without adequate classrooms.

“Auditors are increasingly receptive to the idea of engagement with civil society organizations,” concludes Vivek. “But they have questions around how that is best done. Those questions are very similar to what we have heard from finance ministries about how to engage with the public. We think that it is important that as auditors become more interested in public participation, they don’t just implement tokenistic procedures, but ones with potential for real impact.”

While battling COVID-19 pandemic, Dalit woman emerges as leader

While battling COVID-19 pandemic, Dalit woman emerges as leader

Photos from NCDHR

Preeti, 20, a resident of India’s Bijapur village in Uttar Pradesh’s Jalaun district, must combat more challenges than COVID-19. The first female Dalit (member of the Scheduled Caste, formerly known as “untouchables” [1]) in her village to be enrolled in an undergraduate program, Preeti is anxiously waiting for the government to release the final tranche of her college scholarship. If it fails to do so, Preeti, who is in her final year of a Bachelor of Science program, will be forced to drop out. She is solely dependent on the scholarship to complete her college education.

The National Campaign on Dalit Human Rights (NCDHR), IBP’s partner in India, long has focused on the inequities faced by people like Preeti and has redoubled its work as the ravages of COVID-19 become apparent–including bolstering youth leadership. On March 24, the government of India announced a country-wide lockdown to check the spread of the virus [2]. Since then, all academic institutions in the country have been closed. Along with the pressures of the pandemic, the future prospects of Dalit students dependent on the scholarship scheme has been disproportionately affected—jeopardizing the chances of Preeti and others like her for a path out of poverty and marginalization.

 “It is demoralizing and disempowering for those of us pursuing our PhD/graduate courses if we have to drop out of college and are forced to work as daily wage laborers in the unorganized sector. Our future depends on the timely release of the scholarship [funds],” says Preeti.

Statistics tell stories

The All India Survey on Higher Education for 2018-2019 reports that Dalits account for only 14.9% of the 37.4 million students enrolled in higher education. Most of these students are first generation-learners with no financial resources or social capital. Even those who make it into college face backlash from members of “dominant” castes, as historically, for over 3000 years, education was denied to Dalits.  The marginalization multiplies for Dalit women, who are at the bottom of caste, gender and class hierarchies and most often have no agency or support to overcome these systemic barriers.

Recognizing the institutional discrimination faced by Dalit students, NCDHR is heavily investing in strengthening the collective agency and leadership skills of these students. The core of this intervention is the training and support of a group of student volunteers. In the Jalaun district, there are 30 student volunteers, 40% of whom are girls. They are the driving force of NCDHR’s efforts and Preeti has been volunteering for the last three years.

Despite the troubles Preeti herself faces during the lockdown, she has helped ease its strains on her community. For instance, many Dalits had travelled to cities across India for work, but have been forced to return to their villages. Among the states, Uttar Pradesh is one of the most challenged, with about 2.1 million migrants flooding home. With no food, money or assured mode of transport, migrants made the long trek by foot. The media have reported about 300 deaths by starvation across the country since the lockdown; however, this might be a conservative estimate. The World Bank estimates the lockdown has already impacted 40 million such internal migrants and the International Labor Organization cautions that 10 times this number (400 million) are at risk of falling deeper into poverty.

Women/youth fill the gap

As many as 85 Dalit migrant families made their way back to Bijapur, who then were ostracized by the dominant castes, who did not allow them to enter the village. Another challenge is that the World Health Organization’s recommendation to practice social distancing collides with India’s caste system. Social distancing is traditionally a Brahminical diktat that sanctions the practice of “untouchability” and normalizes discrimination and violence against Dalits [3].

Preeti was quick to take initiative by interviewing migrants and creating a database of their immediate needs, including testing for COVID-19. She led a delegation of six student volunteers and advocated with the Pradhan of the Gram Panchayat (head of the village council), the sub-divisional magistrate and doctors in the primary health centre to provide immediate relief to the migrants. Preeti was persistent and followed up several times. As a result, health camps were organized, dry rations were distributed and shelter was provided in a government school for migrants who required 14 days of quarantine.

The village of Bijapur is home to 1,300 inhabitants, most of whom are Dalit laborers living below the poverty line (less than INR 26 [$0.43] a day). Nearly half the families do not have access to the subsidized dry rations provided to all poor families through the government’s Public Distribution System. Preeti and other student volunteers carried out a door-to-door survey to assess the number of families without the necessary documentation to receive the government COVID-19 relief packages. The volunteers shared the survey findings with authorities in the district administration.

Along with NCDHR’s local partner, Bundelkhand Dalit Adhikar Manch (BDAM), the student volunteers advocated with the district for immediate relief, as well as demanded that these poor households be employed as part of MGNREGA (Mahatma Gandhi National Rural Employment Guarantee Act), thus providing some respite. The act ensures 100 days of minimum-wage employment every year for recipients. Due to the volunteers’ consistent engagement, relief measures were provided to the poorest families and MGNREGA work started again in their villages.

Preeti spearheaded the relief work in her village, Bijapur. Through her efforts, 50 families received dry rations and 15 senior citizens gained access to the government’s pension scheme. Preeti applied for MGNREGA job cards for over 100 families, of whom 87 were successful. Also, as the leader of BDAM’s women’s wing, Preeti raised awareness of the lack of access to sanitary napkins for adolescent girls. BDAM subsequently raised resources from a partner organization to provide these products to 150 girls across three villages in Jalaun district.

The struggle continues

Even as Preeti inspires with her dynamism, she continues to struggle to pursue her education. Due to the pandemic, academic institutions have shifted to digital modes of learning. Virtual lectures, online assignments, webinars and discussions are organized. However, in the absence of equitable access to digital infrastructure [4], including internet service, laptops and smartphones, students from poor and marginalized communities face extraordinary challenges. In light of this, Preeti and other student volunteers met the social welfare officer who implements the scholarship at the district level. The officer was receptive to their demand that the government provide basic digital infrastructure for Dalit students, but has yet to take necessary action. The students are afraid that if academic institutions continue providing classes online, it will push them out of the education system.

Nonetheless, despite facing multiple barriers, Preeti and other student volunteers are pushing social boundaries and bringing about transformational change in their communities. Their association with NCDHR, BDAM and a larger community of student volunteers gives them the strength and resilience to navigate caste and patriarchy in their everyday lives.

“People here are not used to women raising their voices and engaging with the government to influence developmental outcomes. However, due to my efforts during the pandemic, people in the village who were earlier dismissive of my work now respect and look up to me as a leader,” explains Preeti.

This reflects the gradual shift in power equations and socially accepted norms, especially  regarding girls’ agency, education and leadership. The emerging social capital of women student leaders has the potential to change the status quo, but it must be nurtured and leveraged to encourage greater democratic participation, paving the way for inclusive and responsive governance at the grassroots.


[1] The caste system is based on degrees of “purity” and “impurity,” with the Brahmins at the top being the “purest” and the Dalits at the bottom perceived as “polluted”—therefore making them “untouchable.”

[2] India ranks at the top in terms of stringency of government responses among 160 countries in an index developed by the Blavatnik School of Government at the University of Oxford.

[3] India’s caste system is the world’s longest-surviving social hierarchy, with Brahmins at the top and Scheduled Castes (including Dalits) at the bottom. The caste system sanctions discrimination and exclusion from sociocultural, economic and political life.

[4] According to the 2017-18 National Sample Survey Report on Education, only 15% of rural and 42% of urban households have access to the internet. This points to a huge urban-rural divide in addition to gender, caste and class inequalities.



Police reforms require budget reforms

Police reforms require budget reforms

The video of the brutal and senseless killing of George Floyd, an African American, by a white police officer in the United States  has captured the attention of the public around the world. Floyd was the most recent in a series of killings of unarmed black people by security personnel. Thus, what we see is a cumulative, collective wave of frustration and rage, pushing people into the streets to demand racial justice.

A key demand of the protestors is to “defund” police budgets. They argue that police forces are increasingly militarized and using disproportionate force to engage with people, especially people of color, with inevitably bloody outcomes. The protestors also argue that the police have increasingly taken on functions in communities for which they are unprepared and that are best handled by mental health professionals and social workers.

While most media reports focus on police budgets in the U.S., we decided to look at government spending on policing from a global perspective. Data on budgets are not easy to access in many countries—as our latest Open Budget Survey painfully concludes—and even when budget documents are published, they often lack sufficient details to enable meaningful analysis of a government’s priorities. But we were able to use data from the World Bank’s BOOST database to compare budgets and actual expenditures incurred for policing functions in 19 countries* over a multi-year period. (On average, for each country, we were able to obtain budget and expenditure data for the most recent four to nine years).

The most striking finding from the data is that in the 19 countries we analyzed, overall budgets were underspent by 10% on average (in other words, spending was less than what was allocated in the approved national budget). To put this in perspective: The degree of underspending is equivalent to what would be needed for an entire health or education budget in many of these countries. In contrast, the actual expenditures on police functions were slightly overspent by approximately 2%.

As the chart below shows, in every region of the world for which data were available, police budgets are either significantly overspent or are underspent by much less than the overall national budgets.

In individual countries, the problem is even more striking. For example:

  • Uganda overspent its police budget by 16% between 2010 and 2016 but failed to spend 1 out of every 4 budgeted dollars. Shockingly, Uganda underspent its immunization budget by more than 75% even as the government declared vaccine shortages on five occasions.
  • In Mexico, the budget for police services was overspent by $2.3 billion between 2009 and 2016.
  • In the Solomon Islands, the government exceeded the police budget by an average of 3% between 2009 and 2015, while the total budget was underspent by approximately 30%.

These examples suggest that police budgets in many countries tend to be protected from in-year reductions—even as other government functions and investments suffer from under-execution.

There are also other critical issues surrounding the equitable use of police budgets that must be analyzed and discussed with a country’s people. For example, our South African partner, the Social Justice Coalition, analyzed the assignment of police personnel to different jurisdictions and found that more police were assigned to neighborhoods with lower rates of violent crime (largely white and rich communities) than to neighborhoods with higher rates (largely black and poor).

Although police perform the vital functions of maintaining law and order and protecting society from violence, in some cases, police abuse their authority and engage in corrupt practices, use excessive force, target people unjustly (as with racial profiling), and fail to protect the most marginalized segments of society. The police are often seen as partisan government enforcers who silence dissenting voices, including those of journalists, human rights activists and peaceful protestors. Last year, the U.S. Treasury imposed sanctions on the former head of the Ugandan police force for human rights abuses and his involvement in corruption. More recently, the Ugandan police have been accused of using excessive force, including beating fruit sellers and arresting lesbian, gay, bisexual and transgender (LGBT) youths under the guise of enforcing COVID-19 related shutdowns.

While much attention has been focused on specific demands for police reform, justice is like all government functions: It has a significant fiscal dimension. Questions of police reform ultimately boil down to government budget decisions and the values they embody. Fiscal justice cannot be achieved without the participation of impacted communities in budget decisions. For this to happen, people must be empowered with information on government budgets and obtain access to formal mechanisms for engaging with governments during budget decision-making.

There can be no justice without open budgets.

*Afghanistan, Albania, Armenia, Benin, Brazil, Burkina Faso, Dominican Republic, Guatemala, Haiti, Kenya, Mexico, Moldova, Paraguay, Peru, Poland, Solomon Islands, Uganda, Ukraine and Uruguay

What does a ‘culture of storytelling’ mean for nonprofits?

What does a ‘culture of storytelling’ mean for nonprofits?

people sitting around a bonfire“We need to tell stories” is a common refrain today in the field of nonprofit and even commercial communications. But as I’ve listened to the conversation in board rooms to team meetings, one of my primary observations is that the word “story,” along with what subjects lend themselves to it and who can tell it, is widely misunderstood.

In my career as a storyteller, my mission has been to help people and organizations discover the power of stories in their own context. IBP has experimented with this a bit over the years but decided to make storytelling a priority in its global strategy for the organization in late 2018. Thanks to support from the Hewlett Foundation, IBP also had the resources to embark on a journey with staff and partners, seeking to better communicate the human impact of our work.

The end of chapter one of this journey resulted in a new storytelling platform. And since we’re a learning organization with a mission to promote peer exchange, we want to share some lessons learned.

A good place to start is to dispel the widely held myths around what a story is, is not, and what does and does not make one effective:

Myth: A story is pretty much any shareable content that highlights a challenge and/or success. And that’s if the speaker can define the term at all. There are three defining characteristics of a story, as used in this context:

  • It is people- or person-focused. At the heart of a story is one or more specific persons—not an organization or program, although the characters are typically chosen to reflect a broader community or context. Readers don’t resonate with the abstract or collective. While complementary statistics make the point that your character is not unique, it is a one-on-one connection that triggers an emotional response.
  • It follows a narrative “arc,”which means it has a beginning, middle and end. The unconscious mind looks for signposts along the way, which is why so many early fables began “Once upon a time” (a signal that shifts the brain into active listening mode). However, “beginning” and “end” are more flexible than commonly understood. More on that
  • In the context of nonprofits, stories should implicitly answer the most foundational questions we face, from the highest officer of the land to a village elder: “So what?” and “Who cares?”

Myth: Stories are nice to have but are also sort of a gimmick. Actually, research using magnetic resonance imaging shows that when exposed to character-driven stories, more sectors of the brain “light up” (in other words, become engaged) than other types of more academic content. That makes them more memorable.

Myth: Stories are told when success is achieved and, in our work, that often requires years. There are many ways to define success. Sure, the ultimate achievement is a policy change, release of public money for a priority service, etc. But along the way, there are the small victories: the smallholder farmers who had never before attempted to express their views to county officials who now speak at a public hearing, or manual scavengers that can now understand and talk to government officials about their country’s budget. These are all significant. When other milestones come, the story can be refreshed. One other point: Yes, our work often is “two steps forward, one step back.” Make that part of the story! Donors and other supporters need to understand that there will be losses and lessons learned along the way. Any advocacy work is inherently messy and we can’t afford to lose funders and participants when one attempt fails.

Myth: Some work just doesn’t lend itself to human stories. I heard this a lot when I first joined IBP. After all, we focus on a) budgets, not exactly the “sexiest” topic (at least, that is the popular thinking) and b) we aren’t always directly involved in ultimate outcomes. I will answer the first part of the myth with this quote from Philip Gerard, writing in a guide for journalists: “A budget is an expression of philosophy and ideas: Battle tanks or famine relief? Affordable housing or a new sports stadium? A special-education teacher or another administrator? You just have to practice teasing out its inherent drama.” Isn’t that what we are ultimately all about—helping others see the drama and thus the importance in government budgets? . As for b, connecting the global work of IBP to ultimate benefits at the community level is merely a matter of “following the trail”—and, in fact, we must be able to do that. If we cannot, then the very point of our existence is questionable.

Myth: Collecting and sharing individual stories is exploitative and can too easily slip into ‘poverty porn.’ Storytelling done the wrong way can be, yes. But it doesn’t have to be. Problems caused by poor service delivery, like sewage-filled streets and polluted water, are real and need to be highlighted, but we can avoid “poverty porn” by focusing on root causes and telling the stories of our subjects through an asset-based lens. We can highlight their personal agency and strengths. Likewise, individuals chosen as story subjects should always give consent that is fully informed about the intended use and offered the opportunity to approve the final content.

These myths are based on legitimate concerns and deserve organization-wide discussion, particularly since staff at all levels should be enlisted to be on the watch for story material. In addition to the issues listed above, it’s important to consider why you want to share a particular story and to whom. The answers to those questions will determine the points to emphasize.

We’d like to know how we did in following our own guidelines for effective storytelling. Check out the new IBP story portal and leave your comments!


Book review: A new take on macroeconomics

Book review: A new take on macroeconomics

Professor Robert Skidelsky’s 2019 book, “Money and Government: the Past and Future of Economics” (Penguin), is both radical and conservative. It is radical in that it runs against the grain of the economic orthodoxy of the last several decades. It is conservative in that it endeavors to restore economics to the older tradition of “political economy” (in the true sense of that much-abused term) and the fundamental insights of thinkers “whose greatness, for all their differences, lay in the fact that they were more than economists.” This might sound radical too, but Skidelsky’s list of such thinkers is comprised exclusively of household names like Smith, Mill, Hayek and Keynes.

Although it is written in Skidelsky’s accessible style, this complex book will not command a mass audience—even though its messages deserve it. Like many good books, its strength is less in its novelty, then in its powerful re-framing of existing ideas into a persuasive argument.

The book’s title is apt: Skidelsky wants to restore the importance of money and government to our understanding of the economy. In his view, these concepts were the great casualties of the monetarist (and supply-side) revolution, extending from the 1970s until the 2008 crash (and, in many circles, until today). In simplistic terms, monetarism is the idea, most closely associated with the economist Milton Friedman, that control of the money supply is the main tool by which the government should manage the economy.

It is easy enough to grasp the need to revitalize the argument for the role of government. The pre-crash era saw states fail to tame stagflation, government become “the problem” and markets unleashed from regulation on a scale without parallel since before World War I. Clearly, government is in need of some rehabilitation in economic theory.

Demand more from government

But money? The need to rehabilitate the role of money might not seem immediately obvious. How could the role of money have been underplayed in a theory known as “monetarism,” which has as its central conceit the belief that mismanagement of the money supply is the main driver of inflation and economic dislocation?

Skidelsky’s argument is that monetarism’s narrow focus on money negates its independent role as a store of value.  What monetarism ignores is the central Keynesian insight that money is a hedge against uncertainty, and that under pervasive uncertainty, money will be saved rather than invested, weakening the economy and leading to under-employment.  The key here is to understand where money comes from.  Governments do not create money, argues Skidelsky. Rather, banks do through the production of credit. And what drives credit is demand.

So, the right model of the economy is one that emphasizes the demand for money, rather than its supply.  Monetarism focuses on the wrong side of the equation. “Supply-side” economics suffers from a similar problem: an over-emphasis on the supply of inputs, including labor and commodities, that drive the economy, without due attention to the demand for goods and services. This does not mean ignoring the supply side, of course; supply constraints also matter.

If demand and spending are the central problems—as perceived by Keynes when analyzing the Great Depression—then monetary policy, which focuses on the supply of funds, cannot solve them. We have to understand why demand is weak. And demand is weak in the current era, argues Skidelsky (to brutally shorten a long argument), because of inequality and the debilitation of the state.

Richer people control more and more of global wealth, but they do not spend this wealth in ways that generate broad demand. This was papered over in the lead-up to the crash: Poorer people depended on the rise of credit to cushion stagnant wages, but debt is ultimately unsustainable without wage growth or redistribution of wealth.

If people cannot or will not spend their money, then the state must step in. It can do this through deficit financing or a balanced budget, in which taxes are increased to offset higher spending. What matters is to push the economy to use available resources rather than allowing them to lie idle. Under conditions of uncertainty, the unique role of the state is to support demand, not to focus on the money supply.

Toward a new macroeconomics

Unsurprisingly, Skidelsky rejects fiscal austerity. He also favors more state investment, partly through a self-financing public investment bank. Most radically, he rejects central bank autonomy to set interest rates, which he believes should emerge from a political bargain that balances the goals of maximizing output and managing inflation.

Other aspects of Skidelsky’s macroeconomics are relatively uncontroversial: For example, he says governments should adopt a counter-cyclical fiscal policy. In other words, they should maintain a balanced budget for recurrent expenditures, while using debt to finance capital investment at a rate roughly equivalent to growth in output. Debt levels matter less than whether the ratio of debt-to-GDP remains more or less constant. This policy is in line with current thinking that stable debt-to-GDP ratios create the perceived fiscal space to respond to fiscal crises.

An open question is whether these macroeconomic prescriptions are applicable to emerging markets.  Given that mismanagement of state corporations is rife in many emerging markets, the advice to take more spending off-budget to independent public investment banks needs careful consideration, as does the idea that monetary policy should be further politicized. Emerging markets with weak currencies and tighter constraints on access to financing are not able to be as cavalier as rich countries about deficits and debt.

Nevertheless, a macroeconomic philosophy that emphasizes building and sustaining demand through equitable fiscal policies is relevant everywhere. Skidelsky’s economic history is as good a guide as one could hope for when trying to understand what we know, and don’t, about macroeconomics a decade after the financial crisis.