Simply speaking, development macroeconomics can be summarized as the challenge of improving productivity and production capacity in poor countries. This involves the conditions that need to be fulfilled for a development process to start as well as the policy framework and instruments that support it. Heterodox approaches consider the state’s role in steering productivity growth as essential (Cardim de Carvalho, 1997). Markets may be able to exploit price signals and adjust resource allocation correspondingly. However, they guarantee neither sufficient profitability of key sectors nor the demand for the goods produced. Both the profit rate and effective demand are conditions for investment to take place (Oberholzer, 2020). It is thus up to the government to make public investment in priority sectors and to apply instruments such as taxes and subsidies in ways that simultaneously allow for economies of scale, higher productivity large-scale employment and demand. This is what is generally referred to as industrial policy (see for example Chang, 2006; Oqubay, 2018).
But this is not everything. Policymakers have to pursue such a development strategy in face of an (often permanent) shortage of foreign currency. While domestic currency can be generated via the domestic banking system including public development banks, the availability of foreign currency is limited unless a country is able to increase exports or restrict imports. Since larger export capacity and a higher degree of import substitution are long-term goals, the current account is determined by domestic and foreign economic growth. This insight has come to be known as the balance-of-payments-constrained model or Thirlwall’s law, respectively (Thirlwall, 1979, 2013): it is reasonable to assume that demand for a country’s exports grows in income in the rest of the world while imports increase with domestic economic growth because a part of increasing incomes is reliably spent on imported goods. Therefore, stability in the balance of payments requires that imports do not grow faster than foreign exchange earnings via exports allow. A limit to the growth of imports implies a limit to the country’s economic growth, hence the balance-of-payments-constrained growth rate.
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.
In this post, I want to take up another angle on this question, asking: what is ‘the market’ in practice? In particular, I take a closer look at the emergence of the idea that ‘interest rates should be market-determined’. This was a core tenet of the ‘Washington Consensus’ in John Williamson’s original formulation. It was also, historically, a key argument of neoliberal economists. From the early 1970s, several influential pieces (e.g. McKinnon 1973; Shaw 1973) urged the deregulation of interest rates, arguing that while usury caps were intended to assist small farmers, they wound up forcing banks to concentrate on relatively low-risk loans to government or large-scale industry.
In practice, though, the relatively simple proposition that ‘interest rates should be left to the market’ invited a whole range of difficult questions and political challenges.
In a recent article in New Political Economy tracing the history of World Bank agricultural credit programmes (Bernards 2021), I show how neoliberal approaches to development have never really involved ‘shrinking the state’ and unleashing markets so much as fraught and failure-prone efforts to figure out who and what should be governed by, and how to construct, markets.
The histories of international development and foreign aid often focus on aid between independent nations. Williams’ (2013: 234) history of international development aid only begins from the British Colonial Development Act of 1929. Markovits, Strange and Tingley’s (2019) history of foreign aid focuses on aid between “nations” or empires. Helleiner (2014), for instance, traces the origins of multilateral development finance proposals to China’s Sun Yat-sen in 1919.
There is, however, a major problem with these histories. Their starting points reveal a methodological nationalist approach. The history of states and societies since the modern era, is however more complex. The early modern era is well known for the spate of state consolidations and national formations. It may be argued that intra-national transfers within modernizing nations may represent important forms of regional development assistance that have been left out of the consideration of the history of development assistance.
The covid-19 pandemic is showing how important universal health systems are. As the virus continues to devastate communities and economies, many governments have started to look at them with different lens. Investing in public health systems should be mandatory, but austerity policies in peripheral countries are still the priority. Moreover, the increasing financialisation of the health sector produces conflicts that constraint the achievement of a truly universal and comprehensive public healthcare. This is what we address in our recent paper, where we argue that lead firms in the provision of healthcare plans seem to have become platforms for the accumulation of wealth by financial investors, a process that is making shareholder value the main guiding principle of firm behaviour.
A good example of such contradictions is Brazil. A universal health system called the Unified Health System (Sistema Único de Saúde, or SUS) was established in the 1988 Constitution. However, it would be misleading to affirm it has provided universal access and comprehensive care: since its inception, SUS faced an inadequate low level of public spending that jeopardized its mission. In the 2000s, the Brazilian government eventually increased public spending in healthcare, but a kind of paradox emerged as it also set up many policies to foster private healthcare and private accumulation in that sector (e.g., health-related tax expenditures).
In 1959, the Ford and Rockefeller Foundations pledged seven million US$ to establish the International Rice Research Institute (IRRI) at Los Baños in the Philippines. They planted technologies originating in the US into the Philippines landscape, along with new institutions, infrastructures, and attitudes. Yet this intervention was far from unique, nor was it spectacular relative to other philanthropic ‘missions’ from the 20th century.
How did philanthropic foundations come to wield such influence over how we think about and do development, despite being so far removed from the poor and their poverty in the Global South?
In a recent paper published in the journal Economy and Society, we suggest that metaphors – bridge, leapfrog, platform, satellite, interdigitate – are useful for thinking about the machinations of philanthropic foundations. In the Philippines, for example, the Ford and Rockefeller foundations were trying to bridge what they saw as a developmental lag. In endowing new scientific institutions such as IRRI that juxtaposed spaces of modernity and underdevelopment, they saw themselves bringing so-called third world countries into present–day modernity from elsewhere by leapfrogging historical time. In so doing, they purposively bypassed actors that might otherwise have been central: such as post–colonial governments, trade unions, and peasantry, along with their respective interests and demands, while providing platforms for other – preferred – ideas, institutions, and interests to dominate.
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.
In moments of great uncertainty there is refuge to be found in the work of intellectual titans like Samir Amin. After the sad news of his passing in August 2018 in Paris, aged 86, we began thinking about how best to explore the enduring relevance of his analysis and concepts to make sense of contemporary crises.
The pertinence and analytical heft of Amin’s work is particularly important in the contemporary period marked by the interconnected crises related to COVID-19, Black Lives Matter, the climate emergency, and looming debt crises across the periphery. In the years ahead, confronting these multiple and intertwined crises will require the kind of commitment to combining research with political engagement that Amin demonstrated.
Amin’s ability to weave together thorough analysis of the polarising effects of capitalism with concrete political projects for an international radical left makes his work particularly relevant in our quest to understand capitalism, its particularities across the world, and oppositions to it. There is a younger generation of scholars, of which we are a part, that is particularly hungry for Amin’s perspectives, one that came of age in a time where the universities have been thoroughly marketised and moulded by neoliberal processes, and where intellectual production and debates are not necessarily embedded within social struggles.