[stop-imf] Weisbrot: Economists in Denial

[Robert Weissman]

http://www.washingtonpost.com/wp-dyn/articles/A44037-2002Aug4.html

Economists in Denial

By Mark Weisbrot

The Washington Post
Monday, August 5, 2002; Page A15

This week's trip to South America by Treasury Secretary Paul H. O'Neill
is Washington's latest response to growing discontent about economic
failure in the developing world. O'Neill, who has become known for his
blunt remarks about economic policy, should take an honest look at what
has happened to most low- and middle-income countries during the past 20
years. For these countries, the last two decades of the 20th century
were witness to the worst economic failure since the Great Depression.

Consider this: Income per person in Latin America grew by 75 percent
from 1960 to 1980. From 1980 to 2000 it grew by 7 percent, or hardly at
all. Africa fared even worse, with a decline -- some 15 percent -- in
income per person during the past two decades.

Of course, there are some important exceptions: China registered the
fastest growth in world history during the past 20 years. But even
including China, weighted by its enormous population of 1.3 billion, the
developing economies as a group have grown at half the rate they had
achieved during the previous two decades.

It is really just a historical coincidence that U.S. political leaders
have not even had to acknowledge this drastic economic failure, let
alone account for it. The movement that burst onto the world stage in
Seattle 2 1/2 years ago had other priorities. The protesters and their
organizations have focused on the usurpation of governmental authority
by undemocratic, unaccountable bodies such as the World Trade
Organization (WTO), the International Monetary Fund (IMF) and the World
Bank. They rallied against the environmental damage caused by the
reckless globalization these institutions and their corporate allies
have led. And they have called attention to the worsening distribution
of income at home and abroad.

Worthy causes all. But economic growth also matters. For example, if we
look at the countries where poverty has increased during the past 20
years, or where progress toward reducing poverty has slowed, the main
cause is not a change in the distribution of income or wealth: It is the
slowdown in growth.

In fact the past two decades also have seen significantly reduced
progress on major social indicators such as life expectancy, infant and
child mortality, literacy and education. This is exactly what we would
expect in a period of sharply reduced economic growth. So we are not
just talking about dry economic statistics here: It is the lives and
health of hundreds of millions of people that have been stunted.

It is of course difficult to isolate the causes of such a protracted,
geographically widespread economic failure, but there are some prime
suspects. Higher interest rates, often enforced by the IMF, have slowed
growth throughout much of the developing world. This trend was
reinforced by the central banks of the developed countries, further
slowing the developing economies by reducing worldwide growth.

Before the 1980s, it was common for low- and middle-income countries to
pursue a country-specific development strategy. This has been replaced,
in most cases, with a formulaic set of principles involving opening up
to international trade and financial flows, privatization of state-owned
industries and other deregulatory measures. These "Washington Consensus"
policy prescriptions have not fared well in practice, and they have led
to a number of economic disasters in recent years. The Asian economic
crisis of 1998, for example, was brought on by reckless opening to "hot
money" from abroad. Financial and economic crises in Mexico, Russia,
Brazil and Argentina also have taken their toll on global economic
growth.

Searching for good news, partisans of the Washington Consensus (such as
the World Bank) point to countries such as China and Vietnam as
successful "globalizers." But China's banking system is mostly
state-owned, its domestic markets highly protected and its capital flows
strictly controlled. Most of Vietnam's investment is undertaken by the
state.

These Washington economists do not seem to notice the irony in their
argument: "Our brand of neo-liberalism seems to have failed, but the
Commies are doing great!"

O'Neill's Treasury Department controls the most powerful institutions
that enforce the rules of the Washington Consensus: the IMF and the
World Bank. Our government also has the biggest voice in the WTO, whose
rules are widely seen as stacked against developing countries. The
prolonged economic malfunctioning of the past two decades is the
elephant sitting in the middle of their conference rooms, and they are
trying to ignore it. But an honest debate over the causes of this
failure is long overdue.

The writer is co-director of the Center for Economic and Policy
Research.

                                                 © 2002 The Washington
Post Company