(After) Neoliberalism? Rethinking the Return of the State

January 10, 2022January 6, 2022 John NarayanLeave a comment

By Ishan Khurana and John Narayan

A number of commentators have recently suggested neo-liberalism is dead, or is in a process of retreat. During the disruption of global commodity chains caused by the Covid 19-pandemic, free-market policies that have dominated the global economy for the past 40 years appear to have less purchase. Here, authors point to a reversion to a national form of capitalism and protectionism, the questioning of globalization and return of state intervention in the economy. A prime example is the Biden regime’s approach to the US economy, which has turned to deficit driven social spending, expansion of union rights and protectionist measures to public procurement. This hasn’t come out of nowhere – with the neo-liberal global economy being zombie-like since the 2008 global financial crisis.

The fracturing of the global economy along national lines may herald conflict and a new cold war between the US and China. However, the retreat of neo-liberalism also seems to offer a possible opening – through a critique of globalization and a return of the state. Here, a rejuvenated politics of the left may be able to avoid the pitfalls of an emergent authoritarian capitalism and launch a new national form of progressive politics around welfare policies such as the Green New Deal and Universal Basic Income in locations such as the UK and US.

Neo-liberalism is in trouble, but missing from these debates about its demise is a discussion of neo-liberalism in the Global South and, thus, the reality of what the crisis of neo-liberalism means for all rather than simply those within the Global North.

If the Washington Consensus was really over, what would that look like for development strategy?

June 24, 2021June 6, 2021 RRowden3 Comments

If it still looks like a duck, swims like a duck, and quacks like a duck – then it probably still is a duck.

Recent years have witnessed a notable re-embrace of the state’s role in the economy, leading some to declare that the set of free market economic policy reforms widely known as the Washington Consensus has come to an end.

First popularized by U.S. President Ronald Reagan and U.K. Prime Minister Margaret Thatcher in the 1980s, the Washington Consensus policies offered a set of policy guidelines for developing countries, many of which were struggling with high debt and high inflation at the time. These free market reforms included trade and financial liberalization, privatization, deregulation, the removal of capital controls, fiscal austerity (cutting public spending) in order to achieve strict targets for maintaining low inflation and low fiscal deficits, the adoption of independent central banks, and deregulating restrictions on foreign investment, among others. Broadly speaking, the policies sought to roll back the role of the state in the economy and unshackle the animal spirits of the free market. In the 1980s, adopting the policies became binding conditions for developing countries to receive debt relief and new lending by the International Monetary Fund (IMF) and World Bank, in the 1990s, the policies served as the basis for World Trade Organization (WTO) membership rules – and ever since then, the policies have become a cornerstone of the curricula in economics departments at universities across the world.

For a new macroeconomic policy in Colombia

May 21, 2021 Developing EconomicsLeave a comment

In April 2021, Ivan Duque’s administration presented a tax reform bill labeled “Law of Sustainable Solidarity” to Congress. The bill contemplated an increment of the VAT on basic goods in conjunction with an increase in the marginal tax rates on the income of the so-called Colombian middle class. The vast majority of whom earns monthly less than 4,000,000 Colombian pesos (around 1,065 U.S. dollars). Although the bill put on the table contained some crucial elements for discussion, such as implementing a “basic monthly income” of 21 U.S. dollars (by far less than the current minimum wage). It contained little or nothing to effectively tackle Colombia’s high social and income inequality (with an official GINI of 0.526 for 2019).

The tax reform bill was presented in the mid of a severe economic and social crisis that had worsened due to the pandemic and against which the Colombian government has done hitherto little beyond the orthodox recipes. This triggered a general strike and nationwide social mobilizations that have already lasted over more than two weeks without any clarity as to their resolution as yet. The current social protest can be considered a continuation of a general strike that erupted at the end of 2019 and got into a rest due to the pandemic.

Yet, many elements behind the social movement go beyond dissatisfaction with the tax reform bill. Since 2016 after the peace deal between the Colombian government and the FARC, which used to be the oldest and biggest guerrilla in Colombia, the government hasn’t implemented most of the elements contemplated in the peace agreement. Also, although Colombia has had macroeconomic stability for more than 20 years, an indicator such as the official unemployment rate has consistently been above 10%. The level of poverty before the COVID-19 shock was near 32%.

Thus, the following question arises, what does it mean to have macroeconomic stability to the population? A call to think outside the box on what the government can or can’t do must be considered under other lenses. In view of the worsening of the social, political, and economic crisis in Colombia and the need to develop economic policy alternatives to the government’s orthodox position, a group of citizens and academicians wrote the open letter below to respond to those who argue the TINA mantra and believe that there’s a consensus in economics to support tax reforms amidst the COVID-19 epidemic.

A new Washington Consensus on the role of the state?

April 15, 2021 Ilias ALAMI5 Comments

By Ilias Alami, Adam Dixon and Emma Mawdsley

In a recent op-ed, Martin Sandbu of the Financial Times argues that “the conversion by the IMF and World Bank to support the activist state would put Saul of Tarsus to shame.” According to him, we may be witnessing the rise of a new Washington Consensus, which embraces deficit spending (by rich countries), “temporary solidarity surtaxes” on the rich and businesses, green public investment, and other forms of government intervention. This is not only to address the short-term effects of the pandemic, but also to stimulate demand across the world economy. Sandbu finds evidence of this new consensus in the benign view that the IMF has taken on Biden’s “rescue package”, and claims that “the new Washington consensus could prove as politically powerful as the old one.” In another op-ed in October 2020,

Sandbu characterised this new consensus as follows:

“After 1945, the guiding assumption was, first, that the state knew best, then that the private sector was best. We are about to transcend both, in favour of an economic worldview based on finding ways in which government intervention can guide the private sector to perform better. In that sense, economic planning and the activist state are back.”

It is indeed striking that the IMF, the World Bank, the OECD, the G20, and other multilaterals, have adapted their discourse on the role and place of the state in development. This predates the COVID-19 pandemic. In an open access paper recently published in Antipode, we document the emergence of this new vision of the state in development and outline its key features. Since the early 2010s, these institutions have produced a remarkable wealth of material explicitly concerned with old and new forms of state ownership and intervention. Witness, for instance, this November 2020 EBRD Transition report titled The State Strikes Back, or this chapter dedicated to state-owned enterprises in the IMF 2020 Fiscal Monitor. Our analysis of such policy documents and others suggests that we are witnessing a gradual yet fundamental reorientation of official agendas and discourses about the state. This emerging vision embraces a fuller role of the state in development (than the post-Washington Consensus), including as promoter, supervisor, and owner of capital. Our analysis expounds the material context in which this vision is emerging. Two interrelated transformations are particularly important.

The Washington Counterfactual: don’t believe the Washington Consensus resurrection

April 8, 2021April 8, 2021 Carolina Alves4 Comments

By Carolina Alves, Daniela Gabor and Ingrid Harvold Kvangraven

Decades of research have documented the devastating impacts of the Washington Consensus in the developing world. Yet revisionist accounts of this story have emerged in recent years. Remarkable amongst these, a recent blog post by the Peterson Institute for International Economics – “Washington Consensus stands the test of time better than populist policies” – draws on research that is jaw-droppingly ideological and flawed.

Pandemics and the State of Welfare

April 18, 2020April 18, 2020 Rahul Menon3 Comments

In the midst of what might possibly be the worst recession since 2008, and staring down the barrel of overwhelming economic, social and human disaster, there is widespread recognition that increased welfare spending is critical not just to contain the fallout from the pandemic, but also to effectively combat it. By ensuring timely delivery of essentials and basic income support, one can minimise the chances of people venturing outside, and hence contain the spread of the COVID-19 virus.

There are valid concerns raised as to whether these measures go far enough in helping workers or whether institutional mechanisms will be able to convert announcements into genuine progress on the ground. This blog post analyses the arguments behind the justification of introducing welfare schemes in today’s times, and the underlying economic logic behind them.

The increase in welfare provision is sorely needed in a catastrophic situation such as the one we face. But while the readiness to deploy instruments to achieve this is unprecedented, the measures themselves are not. Much of the welfare measures rolled out by governments are standard income support and welfare packages, larger in scale but with no fundamental changes in their basic design. Much of these measures, moreover, have been advocated by many to deal with fallouts from economic crises in the past, only to be met with middling levels of success and acceptance by the powers that be. The impact of the coronavirus has shown us how quickly governments can turn over the fundamental principles of austerity if they are pushed to do so.

This post does not simply aim to criticise government policies of the past in light of current actions, but to outline a warning for the future. The problem of economic distress will not go away once the pandemic does, because then we will be dealing with battered economies, high unemployment, and weak to non-existent growth. In such times, when the threat of the virus has ebbed, there will be calls to roll back the welfare measures of the government. These calls will have to be countered stringently, on the grounds that the need to protect welfare and ensure government assistance is not contingent simply on the existence of a virus, but on the inability of the economic machine to provide for welfare.Read More »

Developing Economics

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Category: Austerity

(After) Neoliberalism? Rethinking the Return of the State

If the Washington Consensus was really over, what would that look like for development strategy?

A new Washington Consensus on the role of the state?

The Washington Counterfactual: don’t believe the Washington Consensus resurrection