Beginning of the End of the Neoliberal Approach to Development?

by HA-JOON CHANG and ILENE GRABEL

We should take note of what we see as the beginning of the end of the neoliberal approach to development. The process of discrediting that development model begins in the aftermath of the east Asian financial crisis of 1997–98.

At the time there appeared to be nothing new in the nature of the east Asian crisis or in the crisis response. But, in fact, the east Asian crisis marked the gradual beginning of the end of the neoliberal consensus in the development community.

The severe constraints on policy space that followed the east Asian crisis created momentum behind a new vision – that developing countries had to put in place new strategies and institutions to prevent a repeat of the events of the late 1990s.

Policymakers in a number of Asian countries and in other successful developing countries sought to insulate themselves from the hardships and humiliations suffered by east Asian policymakers at the hands of the IMF. Indeed, as a consequence of the crisis, the IMF suffered a loss of purpose, standing and relevance.

In the early 2000s, demand for the institution’s resources was at a historic low. In 2005, just six countries had standby arrangements with the fund, the lowest number since 1975. From 2003 to 2007, the fund’s loan portfolio shrank dramatically: from $105bn (£63bn) to less than $10bn.

The fund’s loan portfolio contracted even further after the loans associated with the east Asian crisis were repaid, as those countries that could afford to do so deliberately turned away from the institution. This trend radically curtailed the geography of the IMF’s influence.

In this context, the IMF began to soften its traditional opposition to policies that regulate the international movement of capital (ie policies called “capital controls”). At the same time, the World Bank also began to show signs of grudging change in its traditional opposition to industrial policy.

In the first instance, the current crisis appears to have been good to the IMF. It has rescued the institution from the irrelevance that followed the east Asian crisis by re-establishing its central place as first responder to financial crisis.

But the restoration of the IMF was associated with important change. For the first time in IMF history, the institution issued its own bonds, and this provided the vehicle for unprecedented developing-country financial support for the institution. At the 2009 G20 meeting, several developing countries (namely, China, Brazil, Russia, South Korea and India) committed $90bn to the fund.

And as the eurozone crisis unfolded, the IMF’s managing director, Christine Lagarde, called on developing countries to step forward with a second tranche of commitments. The new developing-country funding commitments were announced in June 2012 when the leaders of the Brics countries (namely, Brazil, Russia, India, China and South Africa) met informally on the eve of the G20 leaders’ summit.

China committed $43bn; Brazil, Russia and India each committed $10bn; while South Africa pledged $2bn. These new commitments reflect the economic power and autonomy of these rapidly growing economies. Indeed, as they have begun to contribute substantial funds to the IMF, developing countries have also become more outspoken in their demands for governance reform within the institution.

So far, these demands have resulted in very modest agreements to change voting weights at the institution (and even these have not yet been ratified by the US). But we cannot help but conclude that IMF governance reform is now firmly on the agenda. Equally important, the current crisis has also marked a substantial curtailment in the geography of the institution’s influence in the global south.

Those developing countries that have been able to maintain their autonomy during the crisis have used the resulting policy space to pursue a variety of counter-cyclical macroeconomic policies. These include inter alia programmes to ensure access to affordable credit to domestic firms; the pursuit of expansionary monetary and fiscal policies and capital controls.

At the same time, developing countries have expanded existing regional, sub-regional, bilateral and national financial institutions and arrangements and created new ones. It is now clear that the east Asian crisis and the current crisis have created the conditions for new patterns of resource accumulation, a growing diversity of financial architectures across the global south, and the beginnings of important shifts in power in the governance of the global economy.

It is notable that even recent reports of institutions like the World Bank have acknowledged the trend towards “economic multipolarity”.

Just as the Asian crisis laid the groundwork for institutional developments that have deepened only in the current crisis, so do we expect the current crisis to catalyse further innovation along the lines already in place, and in directions not yet imagined, when the next period of instability emerges.

This is an excerpt from Ha-Joon Chang and Ilene Grabel’s Reclaiming Development: an Alternative Economic Policy Manual (republished by Zed Books, 2014).

Like What You’ve Read? Support CounterPunch
September 03, 2015
Sal Rodriguez
How California Prison Hunger Strikes Sparked Solitary Confinement Reforms
Lawrence Ware
Leave Michael Vick Alone: the Racism and Misogyny of Football Fans
Dave Lindorff
Is Obama the Worst President Ever?
Vijay Prashad
The Return of Social Democracy?
Ellen Brown
Quantitative Easing for People: Jeremy Corbyn’s Radical Proposal
Paul Craig Roberts
The Rise of the Inhumanes: Barron, Bybee, Yoo and Bradford
Binoy Kampmark
Inside Emailgate: Hillary’s Latest Problem
Lynn Holland
For the Love of Water: El Salvador’s Mining Ban
Geoff Dutton
Time for Some Anger Management
Jack Rasmus
The New Colonialism: Greece and Ukraine
Norman Pollack
American Jews and the Iran Accord: The Politics of Fear
John Grant
Sorting Through the Bullshit in America
David Macaray
The Unbearable Lightness of Treaties
Chad Nelson
Lessig Uses a Scalpel Where a Machete is Needed
September 02, 2015
Paul Street
Strange Words From St. Bernard and the Sandernistas
Jose Martinez
Houston, We Have a Problem: False Equivalencies on Police Violence
Henry Giroux
Global Capitalism and the Culture of Mad Violence
Ajamu Baraka
Making Black Lives Matter in Riohacha, Colombia
William Edstrom
Wall Street and the Military are Draining Americans High and Dry
David Altheide
The Media Syndrome Between a Glock and a GoPro
Yves Engler
Canada vs. Africa
Ron Jacobs
The League of Empire
Andrew Smolski
Democracy and Privatization in Neoliberal Mexico
Stephen Lendman
Gaza: a Socioeconomic Dead Zone
Norman Pollack
Obama, Flim-Flam Artist: Alaska Offshore Drilling
Binoy Kampmark
Australian Border Force Gore
Ruth Fowler
Ask Not: Lost in the Crowd with Amanda Palmer
Kim Nicolini
Remembering Wes Craven’s The Hills Have Eyes
September 01, 2015
Mike Whitney
Return to Crisis: Things Keep Getting Worse
Michael Schwalbe
The Moral Hazards of Capitalism
Eric Mann
Inside the Civil Rights Movement: a Conversation With Julian Bond
Pam Martens
How Wall Street Parasites Have Devoured Their Hosts, Your Retirement Plan and the U.S. Economy
Jonathan Latham
Growing Doubt: a Scientist’s Experience of GMOs
Fran Shor
Occupy Wall Street and the Sanders Campaign: a Case of Historical Amnesia?
Joe Paff
The Big Trees: Cockburn, Marx and Shostakovich
Randy Blazak
University Administrators Allow Fraternities to Turn Colleges Into Rape Factories
Robert Hunziker
The IPCC Caught in a Pressure Cooker
George Wuerthner
Myths of the Anthropocene Boosters: Truthout’s Misguided Attack on Wilderness and National Park Ideals
Robert Koehler
Sending Your Children Off to Safe Spaces in College
Jesse Jackson
Season of the Insurgents: From Trump to Sanders
August 31, 2015
Michael Hudson
Whitewashing the IMF’s Destructive Role in Greece
Conn Hallinan
Europe’s New Barbarians
Lawrence Ware
George Bush (Still) Doesn’t Care About Black People
Joseph Natoli
Plutocracy, Gentrification and Racial Violence
Franklin Spinney
One Presidential Debate You Won’t Hear: Why It is Time to Adopt a Sensible Grand Strategy