The IMF and neoliberalism: Breaking the consensus?

4 Jun 2016


History can offer an insightful glimpse into the conditions required for a so-called ‘consensus’ to change. It took the Great Depression and a lack of faith in Smith’s ‘invisible hand’ for Franklin De Roosevelt to pioneer state intervention through his New Deal in the 1930s. This, in combination with the Second World War, set the stage for the golden age of Keynesian demand management: high rates of taxation and large welfare states.


It took the breakdown of the Bretton Woods fixed exchange rate system and the actions of unrelenting political actors for the ideas of a small clique of previously unrecognised neoliberal economists to become the 21st century global common sense. Deregulation, privatisation and marketisation have been the mantra since 1979. Friedman and Hayek are favoured over Keynes and Marx. Institutions, like the International Monetary Fund, have been at the forefront of cementing neoliberalism in the Global South and North; from Structural Adjustment Programmes in Latin America to bailout programmes in Greece.


So, the publication this week of Neoliberalism: Oversold? by the IMF’s own leading research team has been taken, by some, as a mark of a consensus shift. According to the Guardian’s Aditya Chakrabortty, we are ‘witnessing the death of neoliberalism’. This is, however, highly optimistic.


It would be disingenuous to suggest that the report is not remarkable. The very fact that the IMF is even considering using the term ‘neoliberalism’ is unique. For decades the phrase has been shunned by the New Right as a pejorative term – a description cooked up by left-wing fantasists to delegitimise a system which has seen their ideas increasingly marginalised. Moreover, neoliberalism is assumed, not spoken. That is the beauty of its success. The IMF report marks, to some extent, a shift away from this economic accord. Indeed, the admission of neoliberalism’s existence is an admission of its failures.


As the IMF imply, this system of economic management has brought great instability, itself serving to threaten the economic expansion that it glorifies. From rapidly rising inequality, common place risk of crisis to major volatilities in capital flows, it appears at face value that the institution is laying the framework for what they call a more ‘nuanced’ approach. This, of course, is what is needed in the global economy. But as important as these admissions are, it is important not to get carried away.


For Chakrabortty and the New Statesmen’s Felix Martin to imply that we are witnessing the death of an all-encompassing socio-political ideology is highly premature. This naïve triumphalism is something which has plagued the left more generally in recent years. As a much closer reading of the IMF’s report suggests, the organisation is not fixated on the abolition of neoliberalism, more its fine tuning.


For the IMF, it is important to emphasise that ‘some’, not ‘all’, policies have had a malign affect. This is nothing new. Since Cristine Largarde and Oliver Blanchard have risen to the apex of the organisation, the ringfencing of welfare and healthcare from austerity has been widely supported. The great success of the neoliberal paradigm has been its ability to reinvent and repackage itself – incorporating diverse policies in order to assure its survival. The European Union is the perfect example. Workers’ rights and guaranteed maternity pay in the Social Chapter comfortably exist side by side with aggressive privatisation, financialisation and labour market ‘flexibility’ reforms.


What Chakrabortty and Martin are perhaps failing to understand, in their self-congratulatory fervour, is that a healthy workforce and greater equality of incomes will guarantee the survival of the neoliberal project. Such moves block future challenges to a free market dialectic. As the IMF report highlights, the organisation is focused on bringing about greater economic growth, rather than the niceties. Labour simply remains a cog in the machine of capital generation. This document confirms an evolution rather than a revolution - an evolution which is crucial for the maintenance of the system.


This pessimism is further demonstrated by a look at the wider macroeconomic and political picture. Does the document mark a change in consensus? Definitely not. Does it even the mark the beginnings of such a change? Pessimism prevails. The very fact that neoliberalism survived, fully intact, from the 2007-8 Great Financial Crisis is a cause of profound concern. The fertile years for reform were those immediately after the crash. Despite fiscal stimulation in the U.S and Iceland, Britain and Europe have digressed on a path of deficit reduction and fiscal retrenchment. The by-product of this has been the strengthening of the neoliberal ideology.


As Thomas Piketty implies in Capital, the unceremonious death of neoliberalism would require the imposition of a global wealth tax. The power and finance that the 1% wields over political institutions immediately quells such an aspiration. Indeed, the IMF report steers well away from tackling the malignant practices of the global elite. There is no mention of tax havens and their insidious impact on policy, growth and inequality. Any departure from a neoliberal paradigm would require offshore wealth to become a main focus of criticism.


This is what is highly worrying. The speed with which the scandal of the Panama Papers has passed out of the mainstream domain is symptomatic of what Chomsky calls ‘manufactured consent’.  Neoliberalism has become normalised. Not just in individual nation states but also on a wider level. The ordinary citizen no longer sees such scandals as morally erroneous but merely the way the world works.


The IMF report does not mark a shift in consensus, nor the beginning of one. It must be seen as part of the wider trajectory in the evolution of neoliberalism. Whilst institutions and ideas remain centred upon its core values, and finance retains its comparative advantage, fundamental reform – or even revolution – will merely be a distant dream.

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