Last week the IMF published an article in its magazine that caused a considerable stir around the world. Entitled ‘Neoliberalism: oversold?’ the short piece by Jonathan D. Ostry, Prakash Loungani, and Davide Furceri, all from the Fund’s Research Department, questions whether the economic approach of neoliberalism has been taken too far. They define neoliberalism as a focus on promoting competition through deregulation and on shrinking the state through privatisation and fiscal austerity.
The authors conclude that many of the policies promoted under the neoliberal approach have been beneficial to economic progress. Among these they list the privatisation of state owned enterprises, and the expansion of global trade. However, they argue that others have been of more questionable benefit. Among these they include liberalising the flows of international capital, to allow speculative money to flow in and out of countries rapidly, which they conclude is largely harmful, and austerity, which they believe whilst necessary in some circumstances due to high debt burdens, is nevertheless dangerous in that it increases inequality, which in turn reduces growth.
These conclusions from the IMF are very welcome and it is to be congratulated. They come from the same team that has also recently led research that found that trade unions are important to rebalancing the proceeds of growth away from capital towards labour, thus making it more equitable; that inequality is not harmed by redistributive policies in many instances; and that inequality can be harmful to both the level and duration of economic growth. It would be hard to find a statue anywhere in the vicinity of the IMF building that has not been kicked over by these guys.
And this latest statue is important, as it is a key causal factor underpinning many of these other concerns, helping understand the trend towards increasing inequality. Neoliberalism, or Market Fundamentalism as figures like the Governor of the Bank of England have called it more recently, is something activists have consistently identified as a leading factor behind the growing gap between rich and poor across the world. It works in many ways. Neoliberalism underpins the relentless pressure for ‘more flexible labour markets’, which has led to the decline in trade union power, decline in wages and a much greater proportion of growth ending up in the hands of the owners of capital. Privatisations of state assets, while another neoliberal mainstay, are behind many of the huge billionaire fortunes of the 62 richest in the world, from Mexico’s Carlos Slim to the oligarchs of Russia.
The deregulation of the financial sector was also linked to the neoliberal agenda. Banks have led the way in a new era of record highs in profits, executive pay and bonuses, all of which have helped fuel inequality. While not the explicit intention of many of the architects of neoliberalism, the focus on deregulation and minimal government oversight has in turn opened the door to corruption and political capture by elites. This political capture of the controlling levers of the economy, to the benefit of the 1%, is another causal factor in the inequality story. The same financial deregulation and ‘race to the bottom’ tax competition between countries has created the network of secrecy jurisdictions and tax havens exposed by the Panama Papers, which are enabling widespread corruption and channelling wealth upwards.
The privatisation of public services, where access to healthcare, or the ability to learn, is increasingly based on the ability to pay, again has its roots in neoliberal thinking. This too has been shown to be harmful to social mobility and stifles opportunity, as it excludes the poorest from health and education, and in turn increases inequality.
The Guardian portrayed the article as a sign that we have perhaps past ‘peak neoliberal’ and witnessing ‘the long slow death’ of this way of thinking. The IMF article has clearly rattled the Financial Times, who sought to dismiss it in a way that I found a bit desperate. Certainly with ordinary people, the neoliberal worldview, although rarely called that any more, is pretty unpopular. Right wing populists like Donald Trump are railing against globalisation as much as socialists like Bernie Sanders. But at the moment there is no unified alternative on offer, with protest fragmenting to the right and left. It is also an extremely powerful and tenacious worldview within elites across the world. Small wonder, in that it has served them very well indeed.
For many, particularly in the developing world, the IMF itself has long been a byword for neoliberalism – if anyone was doing the overselling of neoliberalism for many years, it was the Fund. In fact it wasn’t really selling so much as ransoming. The damage done in the 1990’s and 2000’s by the imposition of neoliberal policies was dramatic and had a high human cost in countries across the world. And there remains a big gap today between the great research coming out of the IMF and the continued actions of the IMF on the ground.
So all the more impressive then that the IMF has chosen to publish this article at this time. I hope that this is the beginning of more research and analysis by the Fund on neoliberalism and its impacts. This is a major contribution to the much-needed debate on how we tackle the causes of the inequality crisis and build more equitable growth that benefits the majority, not simply a tiny minority at the top.