The International Monetary Fund published a paper last week which was widely reported as a repudiation of “neoliberalism”. According to the Fund, the opening up of countries to free capital flows and a desire for fiscal consolidation over the past three decades have not delivered obvious economic benefits. In fact, these policies were said to have had little impact on raising growth rates, were linked to rising inequality, and could contribute to financial crises.
The paper was unsurprisingly received with great fanfare by those who self-define as opponents of neoliberalism and, as with other debates on inequality and even Brexit, the IMF will now forever be invoked as having “proven” that the intellectual shift in economic policy since the 1970s has failed.
But whatever the merits or nuances of the study itself, the IMF’s use of the weakly defined term, neoliberalism, risks emboldening opponents of many other successful policy reforms which were not covered in its paper. For among its many critics, “neoliberalism” is a tautologous buzzword – merely things that “neoliberals” do – most often used by the Left to describe conservatives or “people I do not like” or any politician in power since the late 1970s outside of Venezuela.
The intellectual revival of economic liberalism from the late 1970s was, as the IMF acknowledges, not a narrow obsession with government debt and free capital flows. Nor was it just “anything that happened post 1980”. No, it was a coherent policy agenda incorporating free trade as well as free capital flows, less regulation of labour and product markets, and the liberalisation and privatisation of industries which were previously subject to extensive state intervention or, in Britain’s case, ownership.
Across the globe, from Latin America to East and South Asia, as well as in the old West, major aspects of this liberalisation framework have been pursued. The headline results speak for themselves: over the past four decades, the rate of absolute poverty has declined dramatically. Between 1990 and 2010, the rate halved. Over 700m people have been lifted from deprivation in China alone. The basics necessary to maintain life, such as clean water, fuel and food, are more easily available. Economies formalised, and labour markets evolved away from dangerous, subsistence-level jobs. In the developed world, the UK (which embraced this agenda in the 1980s) saw a significant improvement in its relative productivity performance.
Of course, there have been crises and recessions along the way in many countries. And these can be exacerbated by large-scale capital flows, a focus of the IMF study. But large-scale capital movements themselves can often be linked to institutional qualities, or a lack of them, such as the degree of stability of political systems, monetary policy, and the fiscal prudence of governments. This nuance is lost in the IMF narrative.
Furthermore, if “neoliberalism” is linked to getting down levels of government debt, there is little evidence that western polities are in hock to this ideological worldview. In fact, there is no historical precedent in peacetime for the level of debt that many developed western countries have reached in recent years, even leaving aside the huge contingent liabilities in terms of promises for health and pensions.
This is the great irony for those who claim that the UK in particular is dominated by “neoliberalism”. Yes, in the 1980s, we saw many former nationalised industries privatised, labour market reform and the removal of exchange controls, but the state is bigger than in the period before 1979, the scope of government continues to grow, and regulation is more extensive and intrusive than ever.
This highlights something important. Not everything that has occurred since the time of Margaret Thatcher and Ronald Reagan has been “neoliberal”. In fact, many things that have occurred would be anathema to forebears of the revival of economic liberalism such as Milton Friedman and Friedrich Hayek. This IMF study, by utilising this slippery term and examining it in this narrow way, risks giving ammunition to those who see the 1980s liberal revival as an unadulterated disaster and who blame everything that ever occurs on it.