Three economists from the International Monetary Fund (IMF), an organization not known for its favor for left-side policies, have just published an article in the pedagogical review of the International Monetary Fund (IMF), Finance & Development, in which they are questioning or even destroying two dogma of neoliberalism: removing restrictions
on the movement of capital across a country’s borders (so-called capital account liberalization); and austerity. They have used the evidence of the last 50 years in the world to proceed to an analysis of the effectiveness of neoliberal reform, and they found that “There are aspects of the neoliberal agenda that have not produced the desired results.” And their conclusions are the following:
“Our assessment of the agenda is confined to the effects of two policies: removing restrictions on the movement of capital across a country’s borders (so-called capital account liberalization); and fiscal consolidation, sometimes called “austerity,” which is shorthand for policies to reduce fiscal deficits and debt levels. An assessment of these specific policies (rather than the broad neoliberal agenda) reaches three disquieting conclusions:
- “The benefits in terms of increased growth seem fairly difficult to establish when looking at a broad group of countries.
- The costs in terms of increased inequality are prominent. Such costs epitomize the trade-off between the growth and equity effects of some aspects of the neoliberal agenda.
- Increased inequality in turn hurts the level and sustainability of growth. Even if growth is the sole or main purpose of the neoliberal agenda, advocates of that agenda still need to pay attention to the distributional effects“.
Conclusion: “Faced with a choice between living with the higher debt—allowing the debt ratio to decline organically through growth—or deliberately running budgetary surpluses to reduce the debt, governments with ample fiscal space will do better by living with the debt.”
And another lesson for Finland’s decision-makers: “Policymakers, and institutions like the IMF that advise them, must be guided not by faith, but by evidence of what has worked“. And austerity does not work…
In these times of demonstrations against cuts in education, this is worth noting…