A new paper on “Neoliberalism: Oversold?” by Jonathan D. Ostry, Prakash Loungani, and Davide Furceri (pdf), is attracting a great deal of publicity these days.
It’s not really because of the arguments in the paper, which are basically some pretty mild criticisms of some aspects of neoliberalism. It’s only because of where the paper appeared— in Finance and Development, a quarterly magazine published by the International Monetary Fund.
But it’s a mistake to assume the IMF has rejected neoliberalism.
Ostray et al. begin by defining what they mean by neoliberalism, in terms of two main dimensions:
The first is increased competition—achieved through deregulation and the opening up of domestic markets, including financial markets, to foreign competition. The second is a smaller role for the state, achieved through privatization and limits on the ability of governments to run fiscal deficits and accumulate debt.
They then proceed to show that, while in their view, “there is much to cheer in the neoliberal agenda. . .there are aspects of the neoliberal agenda that have not delivered as expected.” In particular, removing restrictions on the movement of capital across borders and fiscal consolidation have not, in general, increased growth—but they have led to increased inequality, which in turn tends to hurt the level and sustainability of growth.
There’s nothing earth-shattering there. In fact, you don’t have to use heterodox economics to arrive at those conclusions. It’s pretty much the Keynesian critique of “hot money” and austerity, which (as Paul Krugman will tell any and all) is standard macroeconomics (except, as I have shown, Krugman doesn’t put much stock in the idea that inequality hinders capitalist growth).
Rather, the reason the Ostray et al. paper has garnered attention in many quarters is the fact that it names neoliberalism and it was published in an IMF-sponsored journal.
However, to keep things in perspective, the publication of the article doesn’t mean there’s a fundamental change in IMF policy in the works. As Myles Udland argues, while the authors may offer “a stunning argument against what has been the prevailing conventional wisdom among many in the international political and economic elite for a generation,”
This paper. . .reinforces the divide, at times, between the IMF’s “house view” on policy and the views of its research staff with regard to how that policy may actually work.
Last summer’s report from the IMF’s research arm that Greece’s creditors needed to take a haircut while IMF officials were working to secure Greece additional bailout funding is a prime example of this tension playing out in public.
Even more succinctly, Peter Doyle,
an economist and former senior manager at the IMF who resigned from the lender in protest in 2012 over its handling of Greece, dismissed the paper as nothing more than “what three guys at the IMF think.”
“This has no broad sanction. It has no status,” he said. “Three different guys might have produced a different article.”
So, yes, neoliberalism was definitely oversold (to an all-too-willing “international political and economic elite”) but don’t expect IMF policies—or, for that matter, the neoliberal approach of the other two members of the European troika—to change anytime soon.