The International Monetary Fund and World Bank have been the two global institutions most associated with pushing neoliberal policies onto developing countries since the 1980s, but a recent (2016) article posted to the IMF’s Financial Development newsletter points out that neoliberal policies have caused problems in several countries, suggesting that neoliberalism hasn’t been universally successful.
The article starts off by defining neoliberalism as having two main aspects: increasing competition and an increased role of the state and then reminds us that policies designed to achieve these two things have been introduced in many countries since the 1980s:
Criticisms of Neoliberal policies
The report notes three problems:
- There is a ‘broad group’ of countries where increased growth doesn’t seem to have brought about any other improvements!
- Neoliberal policies increase inequality and the costs of this are prominent
- Increasing inequality hurts sustained economic growth
Benefits depend on the type of investment
Opening up developing countries to capital flows (liberalising!) seems to have had mixed benefits, depending on how liberalisation has taken place.
Where more investment is tangible, such as money being spent on infrastructure and people skills, there are broader benefits.
However, when it’s just speculative capital coming in (hot ‘debt’ money) this just seems to lead to pump but then a financial crises, and then no more growth.
Austerity policies don’t necessarily work
The report notes that governments with good track records of debt are better off maintaining a welfare state during periods of financial crisis – cutting welfare has adverse affects on spending, which harms a countries economic prospects – it’s better for states in some cases to ‘suck up the debt’.
The combination of huge capital inflows and austerity = more inequality
The report notes that the two together create a vicious loop which creates more inequality which in turn harms longer term growth of a country.
The report doesn’t dismiss liberalisation, but does note that some degree of state regulation could work in many countries – as was the case in Chile – often hailed as a great victory for neoliberalisation, but in fact that State did play something of a regulatory role!