Skip to content
Institute of Economic Affairs

Institute of Economic Affairs

Institute of Economic Affairs

Sunday February 28, 2021
  • twitter
  • facebook
  • rss
  • Institute of Economic Affairs
  • Home
  • About
  • Staff
  • Jobs
  • Epicenter
  • Contact Us
  • twitter
  • facebook
  • rss
  • Blog
  • Film
  • Coronavirus
  • Research
    • Publications
    • Economic Affairs
    • EA Magazine
    • Brexit Unit
    • Int. Trade & Competition Unit
    • SMPC
    • Paragon Initiative
  • Media
    • Media Coverage
    • Press Releases
    • Media Enquiries
    • About IEA Comms
  • Students
    • Internships
    • Events and Conferences
    • Essay Competition
    • Student Resources
    • IEA Budget Challenge
    • Economics101
  • Events
    • Forthcoming Events
    • Past Events
  • Donate
    • Donate Now
    • Donate Monthly
    • Donate to IEA Projects
    • Other Ways to Donate
    • Legacy Gift
    • Donate from USA
    • Contact Us
  • Home
  • About
  • Staff
  • Jobs
  • Epicenter
  • Contact Us

The IMF gets it wrong on ‘neoliberalism’

Diego Zuluaga
1 June 2016
Institute of Economic Affairs > Blog > Policies > Economic Theory

An article from the IMF’s magazine, entitled ‘Neoliberalism: Oversold?’, has been making the rounds on social media. This is not surprising: bemoan ‘neoliberalism’ in one way or another, and you are virtually guaranteed roaring applause on social media. Nor is it surprising that IMF authors are taking such a stance, unless you ever fell for the urban legend that the IMF is a ‘neoliberal’ institution. But what is surprising is how narrowly the article defines the alleged ‘neoliberal agenda’.

Free-market reforms include openness to foreign trade, deregulation of labour and product markets, and the liberalisation of areas of the economy which were previously subject to extensive state intervention. Such an agenda has been pursued, with varying degrees of commitment, not only in Latin America and East Asia, but throughout the Western world, South Asia and – increasingly – Africa as well since the late 1970s. Where they have been pursued, and where they have not been undermined or offset by statist measures, the results have been overwhelmingly positive: a dramatic reduction in global poverty, with 700 million people lifted from deprivation in China alone; greater access by ordinary people to water, electricity and consumer goods; a transition for significant parts of the labour force from the ‘grey’ sector to the formal economy; and a promotion of social mobility as entrepreneurship and credit were unleashed.

The article points out that recent balance of payments crises in Latin America and Asia occurred in the context of free capital flows. But this does not necessarily mean that, as the article implies, free capital flows magnify the likelihood and impact of crises. Rather, an examination of the countries involved shows that events were mainly driven by a lack of robust institutions – independent central banks, fiscally prudent governments, the rule of law – which both spurred public and private borrowing in the boom years and led foreign investors to call in their loans as soon as things turned sour. Argentina, Mexico and Thailand are all salient examples of this cycle. By contrast, countries such as Chile with a better institutional framework have thrived under the free flow of capital. So has the UK, which until 1979 had strict capital controls in place.

There is no historical precedent in peacetime for the level of debt that many developed countries have reached in recent years. However, it is unlikely that economies with public debt-to-GDP ratios close to or exceeding 100 per cent are in a strong position to weather the next macroeconomic headwind. Furthermore, the UK recovery since 2013 and the recent experience of Ireland and Spain show that austerity can be expansionary when accompanied by a programme of liberalising reforms. As far as developing countries are concerned, the main problem is that the state was not just large, but also astonishingly inefficient before liberal reforms were implemented. India’s growth-choking ‘permit raj’ pre-1991 comes to mind. Thus a market-driven agenda has not only cut governments down to size in emerging economies, reducing the burden on taxpayers, but it has also provided oxygen for the private sector to flourish, with very beneficial effects on growth and real wealth at all income levels.

In a context of weak institutions and greedy governments, there may be a point in controlling short-term capital flows to prevent acute crises – although capital controls have not saved Venezuela from economic collapse. Moreover, international bodies such as the IMF may worry about rising inequality as economic growth rewards some more than others within an economy. But even a superficial look at the evidence from the past 35 years shows the amazing progress made – especially by poorer countries – under the so-called ‘neoliberal agenda.’ This progress is sadly overlooked in the article.

Diego Zuluaga
  • twitter
  • email

Policy Analyst at the Cato Institute's Center for Monetary and Financial Alternatives

Diego was educated at McGill University and Keble College, Oxford, from which he holds degrees in economics and finance. His policy interests are mainly in consumer finance and banking, capital markets regulation, and multi-sided markets. However, he has written on a range of economic issues including the taxation of capital income, the regulation of online platforms and the reform of electricity markets after Brexit. Diego’s articles have featured in UK and foreign outlets such as Newsweek, City AM, CapX and L’Opinion. He is also a frequent speaker on broadcast media and at public events, as well as a lecturer at the University of Buckingham.

SIGN UP FOR IEA EMAILS

Share this Story

previousRegulationLet's privatise the loos. Yes, seriously.Len Shackleton 31 May 2016
nextMarkets and MoralityFinance and the common goodPhilip Booth 2 June 2016
latestHealthcareViral Myths: a response to my critics (Part 2)Kristian Niemietz25 February 2021
previous
Regulation

Let's privatise the loos. Yes, seriously.

31 May 2016
next
Markets and Morality

Finance and the common good

2 June 2016
latest
Healthcare

Viral Myths: a response to my critics (Part 2)

31 May 2016
Institute of Economic Affairs
BE PART OF THE IEA TODAY
  • Donate
  • Like
  • Follow
  • Watch

NEWSLETTER SIGN UP

Privacy Policy
© Institute of Economic Affairs
REGISTERED IN ENGLAND 755502, CHARITY NO. CC/235 351, LIMITED BY GUARANTEE
×
We use cookies on our website to give you the most relevant experience by remembering your preferences and repeat visits. By clicking “Accept”, you consent to the use of ALL the cookies. However you may visit Cookie Settings to provide a controlled consent.
Cookie settingsACCEPT
Privacy & Cookies Policy

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these cookies, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may have an effect on your browsing experience.
Necessary
Always Enabled

Necessary cookies are absolutely essential for the website to function properly. This category only includes cookies that ensures basic functionalities and security features of the website. These cookies do not store any personal information.

Advertisement

Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.

Performance

Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.

Analytics

Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.

Functional

Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.

Uncategorized

Undefined cookies are those that are being analyzed and have not been classified into a category as yet.

Save & Accept
Powered by CookieYes