IMF Blames Neoliberalism For Low Growth And Increased Inequality
A new paper from the International Monetary Fund (IMF), a pillar of neoliberal globalization and neo-colonial domination of the developing world, takes a rhetorical shot at the very system it perpetuates.
The paper, titled “Neoliberalism: Oversold?,” is published in the June 2016 issue of the IMF’s official journal, “Finance & Development,” and starts its analysis of the spread of neoliberalism with post-1973 coup Chile where the military junta led by General Augusto Pinochet adopted an economic program crafted by U.S. economist Milton Friedman.
As the paper notes, in 1982, Friedman called Chile an “economic miracle” and the policies Chile implemented that had been proposed by Friedman and the Chicago Boys became a blueprint for what would popularly become known as neoliberalism.
The IMF notes two main planks of neoliberalism that went global after Chile: “The first is increased competition—achieved through deregulation and the opening up of domestic markets, including financial markets, to foreign competition. The second is a smaller role for the state, achieved through privatization and limits on the ability of governments to run fiscal deficits and accumulate debt.”
While the IMF celebrates the globalization of neoliberal policies overall (how could they not given their institutional role), they do concede that there are “aspects of the neoliberal agenda that have not delivered as expected.”
Specifically, the IMF paper cites removing capital controls and imposing austerity as particularly problematic for growth and wealth distribution, leading them to conclude:
•The benefits in terms of increased growth seem fairly difficult to establish when looking at a broad group of countries.
•The costs in terms of increased inequality are prominent. Such costs epitomize the trade-off between the growth and equity effects of some aspects of the neoliberal agenda.
•Increased inequality in turn hurts the level and sustainability of growth. Even if growth is the sole or main purpose of the neoliberal agenda, advocates of that agenda still need to pay attention to the distributional effects.
In other words, austerity and unrestricted capital movements do not improve economic growth but do exacerbate inequality. Though obvious to most, such an admission from the IMF is noteworthy, as is the alternative perspective in the paper’s conclusion.
Rather than double down on deregulation and embrace Friedman’s vision of unrestricted capitalism, the paper sides with economist Joseph Stiglitz on balancing market forces with a stronger regulatory state.
If the IMF genuinely adopted such a view then many of the loan packages given to countries around the world would have to change considerably.
Currently, states accepting IMF loans are typically required to deregulate their economy, privatize public resources, and open themselves up to foreign capital flowing in and out—the consequences of which have been continual financial and economic crisis.
Under this new understanding the IMF should, in theory, ask for more regulations, more stimulative state spending, and tighter controls on capital flows.
Then again, if the IMF did take such an approach, it would face intense resistance from its most prominent backers in the corporate and banking sectors that have benefited the most from privatizing public assets and unrestrained financial speculation.