Neoliberalism, globalization, and economic dependence

Pakistan has been a prolonged user of the International Monetary Fund (IMF) resources during the last three decades of 1990s, 2000s, and 2010s, and the first few years of 2020s also see the country in an IMF programme. During this time, both due to domestic policy and through IMF programme prescription/conditionalities, the country has been pursuing neoliberal policies – reduce the public sector and push for greater privatization, adopt procyclical, aggregate demand management policies, liberalize capital flows, and reduce support for the trade sector.

This has meant that not only in Pakistan, but in programme countries in general, and in particular many of the Latin American countries, there has not been sustained economic growth and macroeconomic stabilization even after a lot of growth sacrifice through actively following austerity and pro-cyclical polices.

Moreover, poverty has either remained stubborn or has grown in many of these programme countries, including Pakistan, along with sharp increase in income and wealth inequality. Similarly, the neoliberal assault also impacted in the way fruits of globalization were primarily distributed in favour of rich advanced countries who had strong institutional, regulatory, macroeconomic and financial fundamentals to start with, and unlike the developing countries were able to manage the fickleness of short-term capital flows under greater liberalization.

In addition, developed countries were at a stage of development that allowed them to compete better in terms of export competitiveness globally in an environment of trade liberalization, while also continuing to provide subsidies, while World Trade Organization (WTO) rules remained weakly implemented on them, as against developing countries.

Yet, while countries like Pakistan, who continued to formulate policies under a neoliberal mindset overall and hence could not receive much benefit of globalization, countries like China and India managed better the wave of globalization by not giving in much to Neoliberalism, and liberalizing in a very cautious and limited manner, and reaped much greater gains in terms of exports growth and reduced negative impact of quick short-term capital flows movements.

Economics Nobel laureate, Joseph Stiglitz, highlighted this as follows: ‘The beginning of the 90s there was enormous support for globalization, believe that everybody both in the developed and less-developed countries would benefit, the poorest would benefit, the richest would benefit. Since then, globalization has united the world, but against it. …in fact, as we did economic studies at the World Bank and elsewhere, after the last round of trade negotiations… completed in 1994, we realized that many of the poor countries of the world were actually made worse off… and that was because of the asymmetric way in which globalization had proceeded.

The advanced countries demanded that poorest countries open up their markets, eliminate their subsidies, but the advanced, industrial countries did not fully reciprocate… Economic globalization has resulted in enormous benefits to a few countries in the world, to China, to India, who’ve experienced enormous economic growth… they’ve learnt how to manage globalization for their own benefit. For instance, they did not open up their capital markets to destabilizing capital flows, and yet, they were able to get large amounts of foreign direct investment.’

Moreover, diminishing economic strength of the demos has resulted in their reduced political voice, weakening of influence over public policy, and overall has led to weakening of democracies in these countries. At the same time, increasing inequality has meant that the influence of elites/oligarchs has increased over public policy over time mainly on account of their actively financing election campaigns and overall funding of political parties.

Neoliberal policies have therefore not delivered in terms of economic stability. These have in fact resulted in creating difficulties for efforts aimed at strengthening democracies in countries that have actively pursued such policies. Domestically, reduced public sector, little regulated private sector, greater privatization, low levels of capital controls, reduced support of export sector, austerity and pro-cyclical policies have resulted in diminishing public sector and, in turn, reduced capacity of demos to hold elected governments accountable for poor economic performance and lack of inclusivity since private sector mostly remains out of the accountability of demos, while tax money has a significant role in the environment that forms the base of the private sector, for instance in terms of infrastructure, subsidized finances, and public-sector produced technology, which is used by private sector.

And as development experience indicate both in China and in Scandinavian countries, for instance, stronger public sector, and greater and efficient public sector enterprises, in an overall non-neoliberal economic policies environment, has led to sustained and more inclusive economic growth.

Externally, weak economic performance on account of neoliberal policies has resulted in long-term economic dependence of governments in managing balance of payments from multilateral partners like the IMF, and in terms of greater trade access, and more equal terms of trade from the WTO.

Such continued need or economic dependency requires departure from neoliberal policies. Moreover, more independent foreign policy and overall stronger economic roots find greater strength when countries are less economically dependent, which require pursuing a non-neoliberal and social democratic policies.

Such dependency has also meant that countries become more vulnerable when under an active neoliberal policy mindset they remain ill-prepared in terms of a public sector capacity and strong domestic economy fundamentals when shocks like pandemic, global commodity crisis and wars appear, not to mention the fast and very dangerous impact unfolding in the shape of climate change crisis.

Hence, developing countries like Pakistan will have to undo the neoliberal policy, adopt greater autarkist, social democratic policies. Only through this policy mindset can the developing countries better manage globalization to their advantage.

(The writer holds a PhD in Economics from the University of Barcelona; he previously worked at the International Monetary Fund)

He tweets@omerjaved7

Copyright Business Recorder, 2022