Waylaid Dialectic

April 4, 2011

Death to the Guardian! Long Live the Washington Consensus!

Meanwhile at Aid Thoughts Matt has a go at whapping the Guardian:

OK – here we go again. Deborah Doane writes on the Guardian Poverty Matters blog about how we should uniformly reject all neoliberal policies. One of her examples?

“In fact, four of the five fastest growing developing countries in the late 1990s were those that rejected neoliberalism. After a severe famine in 2005, Malawi rejected IMF and World Bank prescriptions and subsidised fertiliser for poor farmers. As a result, during the 2007/08 food price crisis, Malawi was not only able to feed its population, but became a bread basket to the region.”

A seemingly simple story about a developing countries throwing off the shackles of structural adjustment in order to do the right thing? Maybe not – Ms. Doah has failed to do her homework on Malawi’s recent history with the IMF.

Let’s rewind a bit to the beginning of multi-party democracy in Malawi, which also introduce a surge in inflation…

Inflation is sometimes seen as a bit of a boogeyman, but there is very little that is pro-poor about a 40% annual inflation rate. It was only through the hard work of the Malawian government and the IMF (under the PRGF) that inflation was brought under manageable level, as was government spending…What’s the lesson here? Sometimes `neoliberal’ policies are beneficial and sometimes they aren’t. Blanket policies are not very useful in the post-crisis world, but neither are blanket condemnations.

I agree with Matt that there’s not much sense in critiquing neo-liberalism or the Washington Consensus in it’s entirety (it’s something I’ve mistakenly done in the past). What really needs to be done is to examine the constituent parts of neo-liberal orthodoxy and see which of them might be right and which might be wrong. After all, the economic order that neo-liberalism replaced wasn’t an unqualified success, so it’s reasonably likely that at least some neo-liberal prescriptions may actually have improved economic policy making in some ways.

The trouble with Matt’s analysis though, is that the success story he’s telling us with regards to Malawi, and inflation and government spending, doesn’t actually look that neo-liberal.

Most economists, of any ilk, would regard unsustainable deficits and an inflation rate of over 40% as a bad thing. What sets neo-liberals apart is that they think inflation needs to be kept extremely low — somewhere close to price stability. You can still see this in the inflation targets of central banks in countries such as New Zealand (approx 3% IIRC). This may or may not be a good idea but it’s not really relevant to the Malawi tale Matt tells us above. Why? Because, the graph shows (or at least appears to show) that current inflation levels in Malawi are close to 10%.

In other words Malawi’s recent economic success doesn’t actually appear to have anything to do with a neo-Liberal approach to inflation. I think the IMF deserves credit (at least based on the facts Matt has provided) for helping Malawi to an approach to public debt and inflation that makes simple economic sense (and would do so to almost any economist — including those not at all neo-liberal). And I think there’s possibly an interesting story to be told about how the IMF itself isn’t actually that neo-liberal itself these days. But what I really can’t see in Matt’s post is any evidence of a neo-liberal economic success in Malawi.

I’d call this one a win on points to the Guardian.

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2 Comments

  1. Terence:

    You’re kind of winning the argument by re-defining how neoliberalism is perceived. First policy point of `neoliberalism’ on Wikipedia:

    “Fiscal policy Governments should not run large deficits that have to be paid back by future citizens, and such deficits can only have a short term effect on the level of employment in the economy. Constant deficits will lead to higher inflation and lower productivity, and should be avoided. Deficits should only be used for occasional stabilization purposes.”

    Part of the IMF `package’ to help reduce inflation and reach HIPC completion was exactly what you see above, a huge push to reign in spending. The NGOs cried neoliberalism like crazy out of this, especially because it resulted in (theoretical) caps on public spending.

    These things may not seem that neoliberal to you, but that’s because they’ve become accepted wisdom in the developed world. To those still fighting an ideological war in the development policy sphere, the IMF’s push towards these constraints was seen as incredibly neoliberal.

    I agree with you – I’d see the IMF’s approach as being just sound economics (to an extent. I think it’s good to go on a diet once and a while, but it might not be neccessary to be constantly losing weight). The labeling of tight fiscal control as being `neo-liberal’ is the fault of others.

    And I’m not, in any sense, arguing that neoliberalism is a good thing – I’m arguing for more dispassionate analysis of context-sensitive problems. I know the Malawi context better than average, because I worked in the Ministry of Finance for two years, and it’s pretty clear that the IMF’s influence during this period has been, to a significant extent, beneficial. I also believe this was due to policies that, while you or I might consider them standard fare, are typically labeled neoliberal.

    Comment by Matt — April 4, 2011 @ 5:24 pm

  2. Hi there Matt,

    Thanks for responding.

    The trouble with that Wikipedia example is that, once again, it represents economic common sense rather than anything distinct to neo-Liberalism. Indeed the final sentence suggests running counter-cyclical macro-policy. But this was exactly what the IMF, during the heyday of the Washington Consensus during the Asian Financial Crisis, acted to prevent countries from doing. So I don’t think the Wikipedia entry is actually describing neo-liberalism in it’s actual essence.

    On the other hand, I do agree that in certain sections of the development community ‘neo-liberal’ basically means ‘shit we don’t like’. So, if you suggest that economic growth is a good thing you’re decried as a neo-liberal regardless of the fact that Keynesians and even Marxists support fostering economic growth too.

    And to be fair to you, Ms Doane, is kindof using neo-liberlism in this sense in her article. Also, I’d concede that I struggle to see what relevance the example of fertilizer subsidies in Malawi has for economic debates in England (unless she’s defending ongoing farmer subsidies across Europe?)

    It would have been better I think if she’d simply attacked the current government’s economic prescriptions on their own terms. I.e. too much austerity too soon having a pro-cyclical effect. And too much suffering being asked of the least well off in order to support this austerity. There was always another option in the UK, when it came to reducing deficits and that was to raise taxes — particularly top marginal tax rates. Personally, if I were engaged in debate about what was happening in the UK at present, I’d definitely be trying to do so by debating what was happening vs potential alternatives and not shouting “IMF, IMF, WORLD BANK, NEO-LIBERAL!”.

    So I think the fact that you’re critiquing the article is fine. And I think you’re completely correct to point out that the IMF isn’t wrong all the time. However, I still don’t think reducing inflation to 10%, and this being coupled with improved economic performance, can really be used as an example of neo-liberal success.

    Comment by terence — April 5, 2011 @ 9:12 am


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