This past week, the IMF, in their quarterly magazine Finance and Development, published an essay with the rather surprising title “Neoliberalism: Oversold?” Written by IMF economists, the piece is meant to be a critique of the neoliberal agenda, an agenda that’s been pushed, almost relentlessly, by the IMF, World Bank and other allied institutions over the last couple of decades.
Should we believe this attempt at a mea culpa and what exactly is the IMF saying sorry for?
(1) To begin with, the IMF’s not saying sorry for the entire package of neoliberal reforms. They think that some (read: most) of the reforms have actually been a godsend:
There is much to cheer in the neoliberal agenda. The expansion of global trade has rescued millions from abject poverty. Foreign direct investment has often been a way to transfer technology and know-how to developing economies. Privatization of state-owned enterprises has in many instances led to more efficient provision of services and lowered the fiscal burden on governments.
One can quibble with some of the blanket statements made here. For example, most of the reduction in the absolute number of the global poor has come from China, a country that is hardly the archetypal neoliberal state. Second, whereas privatization has made previously state-run companies more “efficient,” the efficiency gains have only accrued to a tiny elite. For example, in Zambia, the privatization of water utilities has led to a situation whereby the urban poor are no longer a priority in the provision of water services. You do well to focus your energies on those most capable of paying if your only objective is profits.
Anyways, what exactly is the IMF saying sorry for?
(2) The IMF is unconditionally saying sorry for its dogged insistence, particularly in the 1980s and 90s, that countries’ capital accounts needed to be liberalized to allow for the free flow of capital across borders. Previously, central bankers, particularly in poor countries, kept a tight lid on the movements of foreign capital. A false rumor about a presidential assassination could lead to a sudden outflow of capital with devastating consequences for the exchange rate.
But the IMF, supported by a plethora of research pushed for a complete doing away of capital controls – a world free of such controls would lead to the “efficient” allocation of capital towards its most “productive” uses. Liberalizing the capital account became an important “conditionality.”
We now know that much of that research was useless – no more useful than the types of studies that say homeopathy works. The world, post-relaxation of capital controls, has been a highly unstable world. Common sense would have predicted this much.
(3) The other mea culpa is the insistence on austerity. In the 1980s and 1990s when a poor country was in financial trouble, the IMF would swoop in and immediately put into action a plan for slashing government expenditure. The burden for such cuts often fell on those parts of expenditure important for the poor – publically provided healthcare, education, housing, etcetera. Now the IMF says their inflexible insistence on austerity was a mistake:
[E]pisodes of fiscal consolidation [austerity] have been followed, on average, by drops rather than by expansions in output. On average, a consolidation of 1 percent of GDP increases the long-term unemployment rate by 0.6 percentage point and raises by 1.5 percent within five years the Gini measure of income inequality.
So what to make of all this?
(4) First, it gives one hope that the IMF is finally coming round to the position that its policies caused a lot of damage across the world. Perhaps the Fund will be more cautious this time around as it intervenes in resolving the nascent debt crisis in Africa. Although even here there’s much to be disheartened about if Ghana’s recent interaction with the IMF is anything to go by.
(5) Second, the apology, if one can call it that, seems half-hearted. The IMF’s appraisal of the failings of its policies is largely based on the narrow metric of GDP growth. At times there is an allusion to “unemployment” or “inequality” but that’s it. We know, however, that the Fund’s neoliberal agenda, particularly through Structural Adjustment Programs in Africa, had far-reaching social consequences. The mass lay-offs following Zambia’s fast track privatization program in the 1990s devastated families – depression became commonplace among household heads who had lost jobs. Luanshya, a town on Zambia’s Copperbelt Province, collapsed after its biggest mine was sold to a group of scrap metal dealers pretending to be miners. There’s little time for due diligence when you are selling companies faster than you can keep up.
A full apology would need to reckon with the full-scale violence visited upon the poor by the neoliberal agenda.
(6) Finally, going by the studies referenced in the IMF’s mea culpa, a visitor from Mars would be forgiven for thinking that we all lived in a world where we thought neoliberalism was the bomb until the IMF began to question it. The references section mostly cites “IMF Working Papers”, “IMF Staff Position Notes”, “IMF Occasional Papers”, etcetera. But this debate has been going on for at least two decades with academics and activists from the Global South making some of the most profound critiques of neoliberalism (think here of the many studies referenced in Mkandawire and Soludo’s timeless book from 1999). And many of the original critics, particularly those in the economics profession who dared to defy the Fund, were caricatured as crackpots and ostracized to a life on the fringes of the profession. They deserve acknowledgement and an apology if this attempt at a mea culpa is to mean anything.