Neoliberal economic policy, and political economic outcomes

In a number of interviews after becoming finance minister, there is a sense of naivety reflected in the thoughts of Muhammad Aurangzeb when he thinks that agriculture, for instance, should be able to build on its current growth numbers as a programme with International Monetary Fund (IMF) has little negative consequence for it. Moreover, with the structural reforms in place, agriculture sector will receive a positive.

In principle, energy sector reforms will help reduce input costs for the farmers, and will also help reduce prices of fertilizer – another agricultural input – with a reduction in gas prices, and reforms in the state-owned enterprises (SOEs) will create greater fiscal space for possible subsidy for agricultural inputs. Having said that, there are two problems that will determine the extent, and the efficacy of structural reforms.

Firstly, the problem is that the extractive economic institutional design of the politico-economic elites, which will limit the structural reform to the minimum – for instance, avoiding default on external liabilities, and having enough resources for mustering up some basic level of social welfare spending.

Any pressure from the demos to go for greater structural reforms, like taxing the rich, or reducing the role of vested interest groups for better price recovery, and for enhancing productive, and allocative expenditure efficiency will continue to be weak under an over-board monetary, and fiscal austerity programme of IMF.

This is because, there will be little fiscal space to spend on increasing economic empowerment, and enhancement of political voice of the demos, which, in turn, can firstly elect better quality public representative and throw greater weight on them for legislation that dismantles ‘elite capture’, extractive design of colluding politico-economic elites.

Secondly, the philosophical underpinnings in the shape of Neoliberalism of economic policy – in or outside of the IMF programmes – of these structural reforms not only keep their scope limited, but are even counter-productive in certain ways. The role of government as only a ‘facilitator’ to the private sector, and low level of regulations, on one hand, and over-board role of aggregate demand squeeze policies, on the other, is the environment under which structural reforms are shaped.

This means that market fundamentalism is preferred and there is a lack of aggregate supply focus, both of which means that there is sub-optimal price recovery – in both the real, and financial markets – and overall little protection of demos from over-profiteering, all of which means increasing income inequality and poverty, and weakening of political voice.

Once again, this leads to lessening of pressure of demos on public representatives for social democratic type structural reforms, which allows for greater role of government to ‘co-create’ markets for better price recovery, and for creating inclusive economic institutions and underlying organizations, and markets in terms of governance, regulatory, and incentive structures that check extractive economic institutional design, asks for lesser growth sacrifice for achieving more sustained macroeconomic stability and, in turn, reduces income inequality and enhances economic empowerment, and political voice.

So, the finance minister has to be a lot more cautious, and not adopt over-simplistic understanding of neoliberal, and austerity-based procyclical IMF programmes, and the limited nature of underlying structural reforms suggested in the framework of neoliberal economic policy – in or outside of the IMF programme – so as to better gauge their negative impacts on macroeconomic stability, economic growth, income inequality, poverty, and political voice.

This is not to say that IMF programme is not engaged, given the precarious vulnerabilities on account of debt distress, high inflation, and low economic growth situation being likely faced over the medium-term. It is, therefore, about time the finance minister revisited understanding of a neoliberal, and over-board austerity-based IMF programme, and tried to negotiate a counter-cyclical, non-neoliberal, non-austerity IMF programme.

To take the example of recent wheat-related issue in the agriculture sector, whereby lack of government’s role in creating agricultural market that allows for price recovery that is more closer to optimal, one that better reflects costs involved in the production of agricultural crops – in this case wheat – and that have a procurement, regulatory, and infrastructural arrangement that limits the role of middle-man to the minimum, and overall strongly checks over-profiteering otherwise achieved through suppressing prices for farmers.

Taking a step back from markets, the government also needs to embed related economic institutional, and organizational reforms on the lines of non-shock therapy policies – as suggested neoliberal policy, including that by IMF – that reduce overall prices of agricultural inputs – for instance, by adopting a pricing policy as was adopted by China under its ‘dual-track’ pricing policy framework for strategic economic sectors, for overall better inflationary, and competitiveness consequences – and by providing greater technical and financial support for farmers for increasing agricultural productivity, and for better price recovery for farmers, wholesale markets, and retail markets, on one hand, and for agro-based industrial producers, on the other.

Copyright Business Recorder, 2024