Although quite late, and perhaps because of the urgency being created by the fast-unfolding climate change crisis, and exorbitant rise in inequality globally, even Bretton Woods institutions such as the World Bank Group (WBG) in its recently published ‘World Development Report [WDR] 2024’ asks middle-income countries – to which Pakistan also belongs being a lower-middle income country (LMIC) –to move beyond ‘investment-driven strategies’, and calls for ‘reconfiguring economic structures governing enterprises, labor, and energy use —in ways that enable greater economic freedom, social mobility, and political contestability.’
This flagship report by WBG, the title of which for this year being ‘The middle-income trap’ has defined the term as ‘A situation in which a middle-income country experiences systematic growth slowdowns as it is unable to take on the new economic structures needed to sustain high-income levels.’ Even so, there stills remains hesitancy in the Report to call out the elephant in the room, and which is the centrality of ‘market fundamentalism’ under weak regulation, the adoption of over-board reliance on monetary austerity, and lack of understanding about the significant role of transaction costs in economic growth and, in turn, the importance of institutional quality.
In the absence of this realization, the Report while quite correctly calling out for greater role of policy than just primarily the availability of finance – through private or public sector investment – seems to once again miss the boat of non-neoliberal-, and non-austerity-based policy.
Moreover, the problem being highlighted is not just for the middle-income countries, but also for all the countries, which are stuck in the whirlwind of neoliberal assault.
The usual policy milieu, even when tweaked, as apparently the case as per the recommendations in WDR 2024 being premised once again within the neoliberal framework, will likely not work as an article ‘Overcoming the “middle income” trap’ published in Financial Times (FT), in turn, reflecting on this Report points out the lack of progress of any significant proportion of people, in any particular middle-income country, graduating to average income of a high-income country, as follows: ‘As the WDR stresses, the “ambition of the 108 middle-income countries with incomes per capita of between US$1,136 and US$13,845 is to reach high-income status within the next two or three decades. When assessed against this goal, the record is dismal: the total population of the 34 middle-income economies that transitioned to high-income status since 1990 is less than 250 million, the population of Pakistan.”’
In criticizing the neoliberal experience, a November 2023, Roosevelt Institute (RI) report ‘How a new economics went mainstream’ pointed out ‘We are finally emerging from neoliberalism’s 50-year project, in which income, wealth, and power have been actively transferred to the top 1 percent under an ideology and narrative that says markets are God, government is bad, and individuals are on their own.’
Moreover, it is important for Bretton Woods institutions to understand the need for moving away from neoliberalism policy, if they really wish countries to reform economies in a way that empowers demos economically and politically to have a reasonably just value for their work, and even before that where their fundamental human rights of dignity, choice, and opportunity are respected, and safeguarded by a representative political leadership, and a public policy that they formulate.
In another report by RI, titled ‘The deficit-hawk takeover’, and published in September 2024, point out the purpose of the Report as ‘In exploring how deficit hawks came to dominate Democratic policymaking between the 1970s and the 2000s – and what was lost as a result – this paper argues that we need a new approach.
In the last four years, we have seen an administration willing to break with a half century of neoliberal orthodoxy in much of its economic policy, but this shift is tentative and piecemeal. Policymakers’ decisions about how to manage deficits in the next few years will be critical to defining a progressive, post-neoliberal approach to economic governance.’ Although the Report makes the comment with regard to the US economy, the same holds true globally in general with regard to the non-neoliberal policy that needs to be adopted.
Similarly, a September 5, Project Syndicate (PS) published article ‘America has no alternative to industrial policy’ called for the need for policy in US – although it is applicable everywhere, given how rampant the misgivings of neoliberal policy have been overall globally in terms of weakening economic resilience, and enhancing inequality – to move away from the neoliberal project and, in turn, to not leave improvement in productivity to market fundamentalism, but, instead, move towards bringing in an industrial policy.
The article indicates in this regard ‘Neoliberalism called for shrinking the state, deregulating as much as possible, curtailing antitrust enforcement, and accepting higher economic inequality as a reasonable price to pay to reinvigorate private enterprise and motivate “job creators.” The central assumption was that markets would always deliver better outcomes than government programs could. Yet the consensus today is that this approach failed spectacularly. Nothing played out the way neoliberalism’s advocates had envisioned, unless you count the sharp increase in wealth and income inequality over the past four decades’.
Copyright Business Recorder, 2024