Comment & analysis

Questions the IMF must answer

Nii Akuetteh

2009-04-22, Issue 429

http://pambazuka.org/en/category/comment/55785

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cc flickr.comThe current global economic crisis is not merely a devastating development, writes Nii Akuetteh, but a clear failure of the Washington consensus, neoliberalism and laissez-faire economics. Lamenting the recent G20 summit's tripling of the power of the IMF in spite of the fund's clear failure to acknowledge its own shortcomings, Akuetteh argues that it is now up to Congress and President Obama to force the fund to answer vital questions around its relentless, dogmatic imposition of neoliberalist policy across Africa.

Many aspects of today’s global economic crisis are yet to be understood and require research and debate.

Among serious people, however, a few other critical aspects are clear enough to permit vital intervention. In particular, two tentative conclusions must be spared fruitless debate that will wreck, if not snuff out, lives in places like Africa by delaying much needed action.

The first conclusion is that this economic tsunami is very dangerous – big, damaging, and worsening fast.

The other is that it is manmade – a failure born of consequential human errors. What just failed is a very specific ideology, a slim bundle of certain precise notions and recommendations for running countries politically, economically and therefore socially. After flying high for at least 40 years, that ideology’s crash became undeniable in the US in September 2008, just as Senators McCain and Obama turned in for the presidential race's homestretch. In its rise and sudden fall, the ideology mimicked the sub-prime loans that triggered the fall: wildly popular for a while then unmasked as toxic. Rooted in political economy, the ideas tap into legitimate public frustration with bureaucracy and politicians. The result is that the ideology's intense hostility toward the state – that is, toward government – is unmistakable. In the UK and the US these notions took off thanks to two eloquent and gifted politicians, Margaret Thatcher and Ronald Reagan. What made the dogma especially popular was Thatcher's and Reagan's pithy, bumper-sticker phrasing: 'Government is the problem. Keep it small, out of our lives and out of the market. Give private enterprise a free hand. End all deficits. Deregulate. Privatise. Cut taxes. Cut spending.'

This ideas-package has many names. Neoliberalism, the Washington consensus and laissez-faire capitalism are three. With their views coloured by the ancient but still consequential Paris–London hyper-rivalry, the French and other sceptical western Europeans love calling it the Anglo-Saxon model of capitalism.

If it has many names, neoliberalism has even more critics. Recently, the critics' diagnosis of the crisis’s causality was explained, quite brilliantly, by Mikhail Gorbachev. The critics’ take on laissez-faire? Snake oil. Fraudulent dogma.

Whether snake oil, Anglo-Saxon conspiracy or something altogether wonderful, laissez-faire roared out London and Washington (especially after the Soviet Union disappeared in 1989 and socialism was sent reeling) to dominate most of the globe – China, Africa, south-east Asia, Latin America and the Caribbean, eastern Europe and Russia.

In China, Deng Xiaoping's government in 1978 made a deliberate, voluntary and sovereign decision to embrace neoliberalism.

Africa’s embrace, in contrast, has been anything but voluntary or sovereign. Rather, the Washington consensus has been forcefully rammed down screaming African throats by the continent’s self-described 'development partners'. The force-feeding and protests reached a crescendo in the 1980s once Reagan arrived in the White House.

In this African ramming, the head of the ramrod has been none other than the IMF. It, among Africa’s development partners, has been the most relentless in demanding the adoption of laissez-faire. (It has peddled the snake oil most heavy-handedly, if you like).

Exhibit A is the fund’s ruthless war on budgets for free education, an unambiguous investment, across Africa. One predictable result? The street children swarming African cities today. Consider Ghana. For just under 20 years beginning in 1981, Jerry Rawlings ruled Ghana with an iron hand. After an initial fruitless flirtation with Cuba and the Soviets, he turned to the West. The asking price was that he swallow neoliberalism, hook, line and sinker. Education in particular was devastated. When University of Ghana students protested, troops and police assaulted them and closed the campus, and Blaine Harden, a Washington Post reporter, lambasted the students. The IMF's reaction? It dubbed Rawling's Ghana its 'star pupil'. Today, the African city most overrun by street children may well be Accra, Ghana’s capital.

Exhibit B would be the fund’s pitiless imposition of massive retrenchment (translation: firing) of civil servants. Exhibit C? The many IMF-riots that erupted across Africa and the brutal crackdowns in response unleashed by IMF-backed dictators. The fund’s zeal in privatising every state enterprise it could find in Africa is exhibit D.

One could produce many more exhibits showcasing policies – on water, healthcare, investment regimes, free trade, imports, exports, currency devaluation, debt and taxes – that the IMF dictated across Africa and the protests they unleashed, but you get the picture. And that picture is crystal clear: the IMF has been the most ardent, true believer in (and the most uncompromising imposer of) laissez-faire, the dogma whose catastrophic failure is roiling Africa and the globe right now.

Since today’s crisis resulted from human mistakes, the solution must lie in learning, acknowledging, re-thinking and swiftly correcting the errors.

Commendably, major global players have started down this road and are publicly recognising failure. While attending the 2 April London G20 summit, French President Nicolas Sarkozy observed: 'Since Bretton Woods, the world has been living on a financial model, the Anglo-Saxon model… Clearly, today, a page has been turned.' Two weeks earlier, his host, Prime Minister Gordon Brown had made the same point: 'Laissez-faire has had its day. People on the centre-left and the progressive agenda should be confident enough to say that the old idea that the markets were efficient and could work things out by themselves are gone.'

And serious American leaders have kept pace with the Europeans and others. In his most authoritative speech, the 20 January inaugural address, President Barack Obama announced a new ideological era: 'The question we ask today is not whether our government is too big or too small, but whether it works.'

Nor is it just politicians. In October 2008, Alan Greenspan, arguably America’s most celebrated central banker, confessed publicly to Congress: 'Yes, I’ve found a flaw [in laissez-faire]… I’ve been very distressed by that fact.' On his part, staunch conservative economist, Professor Gary Becker, the 1992 Nobel economics laureate, wrote in March 2009: 'The failure of financial innovations such as securities backed by subprime mortgages, problems caused by risk models that ignored the potential for steep falls in house prices and the overload of systemic risk represent clear market failures.' And with the 7 April speech in Washington, D.C., by Lloyd Blankfein, the head of Goldman Sachs, even Wall Street financial gurus have begun inching toward contrition and confession.

What about corrective measurers in the US? The $750 billion TARP (Troubled Asset Relief Program) was the first step in what seems a long, open-ended American retreat from laissez-faire dogma. With TARP, the US administration decisively violated the laissez-faire taboos of 'no government economic role' and 'no deficit spending' and began rescuing distressed financial corporations. The rationale is compelling. Saving the financial system prevents the collapse of America’s economy, and with it, the entire socio-political system. The president who committed this giant heresy? None other than Mr Dead Certain, George W. Bush, the self-described 'ideological son of Reagan'. Barack Obama has not only continued Bush’s TARP, he has added on three other humongous market interventions of his own: stimulus, a bank bailout and financial re-regulation. Here is the most astonishing aspect of Washington's decisive rejection of neoliberalism: the American people approve. As a result, Reagan’s disciples and heirs have not convincingly argued against, much less blocked, these swift federal government interventions. And intervening has increased President Obama's popularity.

To my mind, the words and actions of all these global political and economic leaders combine to deliver one simple lesson: in finding solutions to the crisis, a change of heart, the discarding of a stale ideology and fresh thinking are what is required.

This point is vital so I will rephrase for emphasis: if one is serious about weathering our manmade economic tsunami, one must start in the mind, by recanting and discarding those discredited economic dogmas that got us in trouble.

Has the IMF done such recanting? Has the enforcer of failed laissez-faire dogma across Africa acknowledged, re-thought and began swiftly correcting its errors? The public evidence says it has not. Specifically, the Fund has not admitted mistakes and has not done any soul searching in public. It most certainly has not publicly rejected toxic neoliberal ideology.

This failure to recant publicly is why the 2 April decision by the G20 to triple the IMF’s finances is so dangerous, especially for Africa.

'When in a bad hole, stop digging.' This aphorism, beloved in Washington, is appropriate here. Africa is in a terrible neoliberal hole dug for decades by the IMF. Yet the G20 seems to be asking the fund to dig three times more furiously. Why not stop digging?

There is a second way to visualise the danger Africa faces. Think of the fund as a vehicle loaded with a vital cargo of, among others, African economies and therefore lives. The G20 has just decided to triple the vehicle's engine power. However, the fund is still headed down the same wrong laissez-faire path. This is a boulder-strewn path ending at the bottom of a steep ravine. And it is the very path that Bush, Obama and Congress have all scrambled to turn the US economic vehicle away from. A question though: what prevents the IMF from doing three times the damage that decades of its force-fed policies have already done to Africa?

Some might answer thus: 'Last month, March 2009, in Washington, the fund adopted important changes.' My response: 'True enough.' But though welcome, those reforms were confined to governance and the marginal easing of harsh loan conditionalities. As the fund's own 24 March report noted: 'Governance reforms are necessary but not sufficient to enhance the Fund's legitimacy, effectiveness and accountability.'

It is therefore astounding that the three extra sets of reforms that the report called for – quota adjustments, a financial resources increase and enhanced expertise – made no mention of rethinking the Washington consensus. Clearly, the changes already made, as well as the new ones requested, do not approach the deep IMF philosophy change that we actually need.

A second answer might claim that the fund abandoned laissez-faire before last month's governance reforms. If so, other questions gush out. Precisely when and where did the IMF discard the Washington consensus? Why? What reasons were adduced? What economic philosophy has replaced neoliberalism within the IMF? How, by whom and through what process was this new ideology arrived at? And what input did the street children and other poor Africans have?

These questions are matters of life and death for Accra’s street children – especially its pubescent girls – and for a billion poor Africans. I am convinced they would have demanded straight answers, had they had a voice in London on 2 April. But they did not. So the G20 did not get them the needed answers.

Consequently, they must now look to Capitol Hill. That is where Congress will hold hearings on giving the IMF America’s share, a US$100 billion line of credit. This places special responsibility on New York Congressperson Gregory Meeks, who will chair the initial subcommittee hearings. He and a few other colleagues (John Boehner, Steny Hoyer and Barney Frank) have an unprecedented opportunity to help Africa by extracting straight, unambiguous answers from the IMF.

Should Congress too fail, President Obama would become Africa's last hope in making the IMF talk straight.

So Mr President, respectfully, before letting the IMF get the US$100 billion line of credit, please consider saying to the fund: 'I do believe in capitalism. And I did call Reagan consequential. Even so, I have turned away from Reagan-initiated, laissez-faire neoliberal capitalism. Witness my stimulus, my bank rescue plan and my re-regulation of the financial system. As I said in Denver and elsewhere, those stale dogmas have landed America and the world in a very bad place. Why then are you still wedded to laissez,faire? You are not? Great, what have you replaced it with? What economic philosophy do you believe in now?'

Those few words of yours, Mr President, would become strong rope ladders, sooner rather than later. And I guarantee you many, many street kids now languishing in Kibera, in Accra and elsewhere would use them to climb out of their African slums. They (and I, who very narrowly missed becoming a street kid) would be eternally grateful. Many thanks.

* Formerly the executive director of Africa Action and of OSIWA, Nii Akuetteh currently analyses Africa policy and issues from Washington, D.C.
* Please send comments to editor@pambazuka.org or comment online at http://www.pambazuka.org/.

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