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LATEST NEWS UPDATES | Second thoughts on the market model -Pritam Singh

Second thoughts on the market model -Pritam Singh

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published Published on Jun 2, 2016   modified Modified on Jun 2, 2016
-The Tribune

A confession by IMF economists in the flagship magazine stating that the kind of growth promoted by neoliberalism promotes inequality has created a buzz.

Once in a while, something unexpected happens so stunningly that one finds it unbelievable in the first instance. A group of three economists in IMF's research department has written a joint paper criticising some key aspects of IMF's creed of neo-liberalism. It appears as unbelievable as it would be if one day, some RSS ideologues were to declare that Hindutva is harmful for the Hindus or the Chinese Communist Party were to admit that the Party had harmed the cause of socialism.

The paper titled “Neoliberalism: oversold?” by Jonathan Ostry, Prakash Loungani and Davide Furceri in the latest issue of IMF's flagship magazine Finance and Development brings out for the first time the flavour of the internal debates raging inside IMF on the suitability and effectiveness of austerity and open trade policies advocated and, in some cases, imposed by IMF on many countries in the world.

The acceptance and use of the word “neoliberalism” by IMF economists is remarkable in itself.  The word has been used pejoratively mainly by Left-wing critics of IMF's and World Bank's policy paradigm called "The Washington Consensus" (so named because both organisations are based in Washington and share the ideological framework of free market capitalism). It proves the point that if a criticism is robust and is carried on consistently, it may be brushed aside as uncomfortable in the beginning but it tends to have a lasting impact in the long run. The authors of the paper in subtitling it as "oversold" seem to be aiming at suggesting that not everything in their policy package is wrong. The abstract of the paper sums up their intent by referring to only "some" aspects of neoliberalism: “Instead of delivering growth, some neoliberal policies have increased inequality, in turn, jeopardising durable expansion”.

The paper praises the role of increased international trade in reducing poverty and that of increased foreign direct investment in increasing efficiency. Both these claims are questionable and we will return to these but the meat of the matter is in the criticism of neoliberal agenda on three aspects. One, that the evidence from a broad range of countries suggests that the claim that neoliberalism always contributes to economic growth is difficult to sustain; two, that even if growth takes place in some countries, it leads to increase in inequality, and third, that continuing inequality is harmful for sustainable growth. All these three self-criticisms from the horse's mouth, so to say, deal a severe blow to the defenders of the neoliberal agenda.  

On the face of it, it might seem like a contradiction that if one aspect of neoliberal policy framework, namely increased international trade, reduces poverty, how can another aspect, namely of economic growth, lead to increase in inequality? The confusion over this apparent contradiction — reduction in absolute level of poverty coexisting with increased inequality — sometimes reaches the top echelons of the decision-making process.

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The Tribune, 2 June, 2016, http://www.tribuneindia.com/news/comment/second-thoughts-on-the-market-model/245421.html


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