Neoliberalism and selective memories

Since the financial crisis I can't make new memories.... everything fades....

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. The two-term presidency of the first democratic president, Bakili Maluzi, was marked by excessive government spending, poor macroeconomic management and a surge in corruption and theft of public funds.

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. There were probably some negative consequences to this imposed austerity (many assert that the IMF’s pressure to keep the wage bill down hurt social programs in the country, although the evidence of this is mixed), but I think few people would consider Malawi’s position before the introduction of the PRGF to be sustainable.

In 2006 Malawi finally reach its HIPC completion point, resulting in a slashing of its debt burden by nearly $3 billion dollars. The amount that Malawi saved on immediate debt from this relief nearly equaled the amount they chose to spend on fertilizer in the subsequent budget year, so the benefits of the relief are quite clear. Aside from the immedite benefits, being nearly debt-free gave the country the wiggle-room necessary to pursue more expansionist fiscal policy, and it is highly doubtful that they could safely be spending so much on fertiliser today if they hadn’t behaved a little beforehand.

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.

4 thoughts on “Neoliberalism and selective memories

  1. Alipo

    March 23, 2011 at 8:57pm

    Not to mention the lauding of the short-sighted fertiliser subsidy programme!

  2. terence

    April 4, 2011 at 3:23am

    I agree with you about the need not to talk about neo-liberalism as a singular entity but rather to break it up into its constituent parts. I’m less sure though that the inflation tale you tell has much to do with neo-liberalism at all.

    Looking at your graph inflation in Malawi still seems to be running at about 10% per annum. To an acolyte of the Washington Consensus (or even just someone working at the ECB) this would be a disastrously high rate. And yet, Malawai seems to be doing ok.

    Even the wildest of the wild-eyed heterodox economists wouldn’t think 40% inflation was a good thing. Nor would they claim that run away government spending were a good thing. So it seems to me that all you’re really showing here is that the IMF isn’t actually that neo-liberal any more, and that its interventions sometimes help. What I don’t think you’re providing is any evidence that what has happened in Malawai is in any way a win for particular aspects of neo-liberal cookbook.

  3. Matt

    April 4, 2011 at 8:25am

    This is my reply from Terence’s blog:

    You’re kind of winning the argument by re-defining how neoliberalism is perceived. First policy point of `neoliberalism’ on Wikipedia:

    “Fiscal policy Governments should not run large deficits that have to be paid back by future citizens, and such deficits can only have a short term effect on the level of employment in the economy. Constant deficits will lead to higher inflation and lower productivity, and should be avoided. Deficits should only be used for occasional stabilization purposes.”

    Part of the IMF `package’ to help reduce inflation and reach HIPC completion was exactly what you see above, a huge push to reign in spending. The NGOs cried neoliberalism like crazy out of this, especially because it resulted in (theoretical) caps on public spending.

    These things may not seem that neoliberal to you, but that’s because they’ve become accepted wisdom in the developed world. To those still fighting an ideological war in the development policy sphere, the IMF’s push towards these constraints was seen as incredibly neoliberal.

    I agree with you – I’d see the IMF’s approach as being just sound economics (to an extent. I think it’s good to go on a diet once and a while, but it might not be neccessary to be constantly losing weight). The labeling of tight fiscal control as being `neo-liberal’ is the fault of others.

    And I’m not, in any sense, arguing that neoliberalism is a good thing – I’m arguing for more dispassionate analysis of context-sensitive problems. I know the Malawi context better than average, because I worked in the Ministry of Finance for two years, and it’s pretty clear that the IMF’s influence during this period has been, to a significant extent, beneficial. I also believe this was due to policies that, while you or I might consider them standard fare, are typically labeled neoliberal.

  4. Matt

    April 4, 2011 at 8:27am

    “Looking at your graph inflation in Malawi still seems to be running at about 10% per annum. To an acolyte of the Washington Consensus (or even just someone working at the ECB) this would be a disastrously high rate. And yet, Malawai seems to be doing ok.”

    I’m not arguing that Malawi completely embraced one of the tenants of the neo-liberal cookbook, I’m arguing that one of the tenants of the neo-liberal cookbook helped bring inflation down from 40 to 10%.

Comments are closed.