Macroscope | Economists are struggling with this classic problem that lies at the heart of IMF policy
Recent work has suggested that growth in GDP and in productivity may also be slowed by inequality
Prominent economists from the International Monetary Fund have raised eyebrows recently by questioning the virtues of neoliberalism. An article in the Fund’s quarterly magazine entitled “Neoliberalism: Oversold?” was a source of surprise for two reasons.
First, it questions aspects of long-established policy orthodoxy. Second, neoliberalism is usually deployed as an epithet by those who decry IMF policy prescriptions as destructive and unjust. The use of the word is deliberately attention-seeking and has provoked some on the left to characterise the Fund article as a full-scale recantation.
It is far from that. On the substance, the standard IMF model for sound policy favouring growth and development is also referred to sometimes as the Washington Consensus, a phrase introduced into policy discussions in the late 1980s by John Williamson.
The core elements of this so-called consensus call for liberal trade and investment policies, fiscal discipline, market exchange rates, subsidisation limited only to social support policies, private ownership, secure property rights and minimal regulation.
Packages along these lines have taken hold in many economies. With some important exceptions, they are considered essential to economic progress among a broad community of policymakers.
Now the IMF has come along and given qualified succour to critics of the orthodoxy. These are welcome adjustments. They essentially focus on two issues, one fairly narrow and the other more fundamental. The narrower ground relates to capital account openness.
