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.

Blog at WordPress.com.