Alternatives to neo-liberalism in the Third World.

AuthorSandbrook, Richard

The Third World has entered an era of ideological flux. The inadequacies of neo-liberalism have spawned a widespread questioning of this dominant worldview. Intellectuals and political movements search for an alternative path that offers the hope of a more desirable, yet practicable, future. In response, the World Bank has spearheaded a shift from an unpopular and inefficacious Washington consensus to a more politically and socially astute 'post-Washington consensus' akin to social liberalism. This shift, though blunting the attack on neo-liberalism, has moved the debate on legitimate development strategies to the left and towards more statist policies. Proponents of 'socialism for the twenty-first century', a return to developmental states, and social-democratic paths vie for support with the now mainstream social liberalism. Social-democratic paths seem to suffer from fewer normative and practical disabilities than other egalitarian paths--at least in relation to middle-income developing countries. A major challenge, however, lies in forging a realistic 'left' alternative in the context of poor, neo-patrimonial states, such as those found in sub-Saharan Africa.

Protests against the Washington consensus

Neo-liberalism is an ideology that revives classical economic and political liberalism in a form deemed appropriate to contemporary conditions. As an ideology, neo-liberalism does what all ideologies do: it popularizes or simplifies complex theoretical or philosophical thought in order to motivate and guide political action. Ideologies constantly evolve, as their advocates appropriate popular ideas fielded by opponents and adapt to changed circumstances. In the developing world since about 1980, the World Bank has been the most influential actor in adapting neo-liberalism to developmental challenges. (1) An initial 'Washington consensus' has evolved into an expansive 'post-Washington consensus'. The former, which held sway in the 1980s and early 1990s, focused narrowly on achieving the goal of economic growth by means of macroeconomic stabilization, economic liberalization, external opening, deregulation, privatization, and minor institutional reform. This narrow neo-liberal approach achieved little success.

Despite their adoption of market-friendly reforms, many developing countries have stagnated or have experienced abrupt economic downturns. Whereas the median per capita income growth in developing countries in the era of state interventionism (1960-79) reached 2.5 percent, it was a disastrous 0.0 per cent in 1980-99 (Easterly, 2001, 135).

Branko Milanovic (2003) similarly accepts that the development record of 1960-1978 is superior on all measures to that of 1978-1998, noting that the best performers in the second period--notably China and India--did not follow mainstream free-market policies but relied heavily on state intervention. As Milanovic concludes, 'something is clearly wrong'.

Critics have also identified several destructive trends associated with neo-liberal reform:

* High and growing inequalities have accompanied market liberalization (Wade, 2004; Cornia, Addison and Kushi, 2004). World income inequality has likely been rising, a trend that is incontrovertible if China is removed from the calculation. Within countries, neo-liberal policies have also been associated with growing inequality and poverty in most cases.

* Market reform diluted democracy, directly by removing important decisions from the public arena and indirectly by fomenting cynicism. International agreements circumscribed governmental power to regulate trade, financial flows, investment, and health and environmental standards. Global financial markets, when liberalized, punished governments that deviated from conservative policies. And inequality, sustained or exacerbated by market forces, fed a growing cynicism regarding the efficacy of democratic institutions.

* Market liberalization generated conditions that were conducive to instability and conflict. Where markets are only lightly regulated, they subject people to rapid and sometimes devastating changes in fortune. Distributional shifts, new forms of economic insecurity, and external shocks demanded strong, coherent states to devise adaptive economic strategies and mediate domestic distributional disputes. Yet these new tensions, combined with externally influenced austerity programs and anti-state ideologies, challenged the legitimacy and coherence of already weak states. The rise in grievances, coupled with increasingly ineffective and unpopular regimes, provided an opening for violent protest movements drawing on religious fundamentalism, ethnic chauvinism, or charismatic populism (Sandbrook and Romano, 2004).

These conditions have provoked a widespread questioning and even outright rejection of neo-liberalism. Protests often manifest an inseparable anti-imperialist tinge, owing to the identification of the United States government with both neo-liberalism and (especially under George W. Bush) unilateral interventionism.

Latin America has experienced a major backlash against free-market prescriptions. Since 2000, elections have brought the democratic or quasi-democratic left to power through elections in countries accounting for three-quarters of the region's population: Brazil, Argentina, Venezuela, Ecuador, Uruguay, Bolivia, and Chile. Uprisings against neo-liberal reforms have occurred in Mexico (the Zapatistas [EZLN] in Chiapas on January 1st, 1994, the day when the North American Free Trade Agreement came into effect),

Bolivia (periodically since 2003, with so-called water and gas 'wars' over privatization, forcing the resignation of two presidents), Ecuador (in 2000, leading to the toppling of a government, and again in 2004-2005 as erstwhile supporters forced President Gutierrez to resign for betraying his radical promises), and Nicaragua, where violent demonstrations in 2005 threatened to reduce the country to chaos. Further evidence of Latin American disillusionment includes the rejection of the U.S.-backed plan for a Free Trade Area of the Americas in 2004, and recent decisions by key governments to escape IMF tutelage by the early repayment of IMF loans. What unites these leftist governments and popular protest movements is not socialist doctrine. It is, rather, an inchoate view that failed neo-liberal prescriptions should be replaced with egalitarian and nationalist policies and a more central economic role for a democratized state (Renique, 2005).

In East and Southeast Asia, most countries never embraced the Washington consensus. Instead, such rapidly industrializing countries as South Korea, Taiwan, China, Vietnam, Thailand and Malaysia had hewed more closely to the Japanese model of the developmental state. Only in the early and middle 1990s did some of these countries yield to pressures from the U.S. government and the World Trade Organization (WTO) to undertake economic liberalization, especially of financial markets. The financial collapse of 1997-1998, initiated by a run on the Thai baht, brought even such an economic powerhouse as South Korea to its knees. The subsequent misguided effort of the IMF to use its leverage with desperate governments to undertake yet further liberalization led to a backlash against neo-liberal policies (Stiglitz, 2003, chap. 4). Even South Korea, which has been a stalwart foe of communism and socialism since the Korean War, experienced a rise in the forces of...

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