Several decades of neoliberal economic reforms brought about the greatest global reduction in poverty ever achieved, by far. But success brings laziness, and many countries began to take their achievements for granted. Even successful policies fail to eliminate all economic problems, and because neoliberalism was the dominant strategy from the 1980s to the 2000s, pundits began to (wrongly) blame neoliberalism for the remaining economic problems. Reform momentum slowed, and policies moved back in a more statist direction.
Nonetheless, when countries get into serious economic difficulty, their policymakers remain aware that neoliberalism is the only regime that is reliably effective. Here’s the FT:
They include most prominently Turkey, Argentina, Egypt, Nigeria and Kenya, and they carry some weight. All five of these reforming countries are in the 40 largest emerging economies, so their turn for the better is reinforcing the global economic recovery as well.
Battered by high inflation, debt and deficits, their foreign exchange coffers were emptying when global interest rates rose sharply in 2022. As higher borrowing costs drove their debts deeper into distress, they had no choice but to change. Their leaders — who in Argentina, Kenya and Nigeria were newly elected with a mandate for reform — don’t quite say so out loud, but their plans came straight from the pages of the old and much-maligned Washington consensus. Budget discipline and heeding market forces are the only policy choices that work when a nation runs out of money.
Statism is a luxury that bankrupt countries cannot afford to engage in.
READER COMMENTS
Mactoul
Apr 21 2024 at 2:30am
Statism, insofar it means something, is hardly incompatible with market reforms. Prime example, China and the lesser example present India.
Scott Sumner
Apr 21 2024 at 10:40am
There is statism in all countries. But market reform basically means “become less statist.” That’s certainly been the case in China.
Thomas L Hutcheson
Apr 21 2024 at 6:51am
One that that is distressing to me is that many people associate tax reductions atht increase deficits (whether because expenditures cannot be similarly reduced “as expected” or because the reduction in rates were expected to “pay for themselves?) as part of “neoliberalism.”
Philo
Apr 22 2024 at 2:03am
The tax reduction may put pressure on the government to reduce its expenditures (“starve the beast”), which probably would constitute neoliberal reform. One can hope!
Todd Ramsey
Apr 21 2024 at 8:45am
#VLLC
Anders
Apr 21 2024 at 8:57am
The narrative about neoliberalism and other paradigms confuses me. In the West at least, we have a strong basic consensus and commitment to economic liberalism and some version of a welfare state. Noone argues anymore that we should renationalise the telecommunications sector (or in the us as someone quipped put the dmv in charge of… motor vehicles), and noone argues we should scrap welfare transfers or stop public funding for primary education. Basic liberalism has prevailed, as has a large state between a third and half of gdp. The dividing lines are about the details.
Argentina stands out not only because of Milei, but because all candidates, even Peronist Massa, stood for radical turns toward liberalism in general. That has never happened before. The shift is more fundamental than meets the eye: Peronism, rooted in Mussolini style fascism that in Latin America is not seen as a contrast to its left wing version apart from Chile, had become so entrenched that any reform until then had to take place under its umbrella, and since it was founded, Argentina never developed a liberal tradition – in fact the blinkered, half hearted attempts and the desaster they wrought are still very much in living memory. I was afraid Mileis radicalism would end up wreaking even more havoc, but the changing mood and the pragmatism he has shown, such as by increasing transfers to the poor and focusing his initial energy on what would bring immediate benefits and what was obvious examples of elite rent seeking, may just work in a country where nothing else seems to…
Jon Murphy
Apr 21 2024 at 11:27am
Given its track record, socialism is more of a luxury bad
David Seltzer
Apr 21 2024 at 5:22pm
Really bad!!!
spencer
Apr 21 2024 at 2:03pm
Socialism opens up Pandora’s box…
Frictionless financial perpetual motion requires that “income not spent” (monetary savings) is reintroduced into the economy without an expectation for any destabilization in the price level. It necessitates that it will be invested in real-investment outlets, like during the Golden Era in U.S. economics.
Ahmed Fares
Apr 21 2024 at 5:22pm
Why Welfare and Redistribution Saves Capitalism from Itself
Jon Murphy
Apr 21 2024 at 5:33pm
As a factual matter, this statement is incorrect. The welfare state is a relatively modern thing. Most countries in the “modern, high-productivity, rich-country club” joined (or founded) without welfare states.
The author has things exactly backward: rich countries enable a welfare state. Welfare states do not enable wealthy countries (this is evidence by the fact the are far more welfare states than wealthy states)
Ahmed Fares
Apr 21 2024 at 7:01pm
Canada, my home country, as one example.
This from another source with dates.
Those dates above point to the Great Depression and the aftermath of WWII.
Canada’s welfare state came first.
Ahmed Fares
Apr 21 2024 at 7:14pm
Further to my comment, this for the US:
Jon Murphy
Apr 21 2024 at 7:24pm
I don’t understand. Are you renouncing your original comment?
Ahmed Fares
Apr 21 2024 at 8:42pm
No, in all three comments, the welfare state came first. The first comment said that Germany started it’s welfare state 150 years ago.
Jon Murphy
Apr 22 2024 at 6:48am
No, in all three the welfare state came long after they were wealthy, as your timeline indicates. True, in all three they continued to grow after the welfare state, but that was the continuation of a trend, not the start of a new one
Jose Pablo
Apr 27 2024 at 4:20pm
the welfare state came first
Out of what, exactly?
It is widely accepted, even by people defending redistribution, that redistribution reduces wealth. On this see Okun’s “Equality and Efficiency: the Big Trade Off”
The bucket does leak.
Ahmed Fares
Apr 27 2024 at 5:03pm
Jose Pablo,
Redistribution reduces wealth in the short term. It increases wealth in the long term because equality of opportunity means the best people rise to the top. Without redistribution, you get social upheaval. BLM, DEI, etc. It’s happening now.
I learned this recently:
You need some socialism to prevent a bigger socialism.
This also from Wikipedia:
Robert EV
Apr 28 2024 at 4:33pm
@Jose Pablo,
Out of curiosity, does this analysis of redistribution include the redistribution of the output of labor to capital? Would the world be richer if everyone engaging in the production of goods and services was a sole proprietor? I presume not, but I wonder where the balance between redistribution friction and economies of scale lies. I’d guess that mono/oligopoly and mono/oligopsony analysis would be part of this analysis.
TMC
Apr 22 2024 at 8:41am
Ahmed’s cites of the Great Depression’s aftermath are a good example of ‘Don’t let a crisis go to waste’. Maybe FDR’s prolonging of the depression was in order to get his social policies enacted.
Knut P. Heen
Apr 22 2024 at 8:09am
Calling something a welfare state is useless unless the state control resources. World War 2 was fought with conscription, not taxes (women in factories, men in the army). You need quite some bureaucracy to create an effective income tax. Bismarck’s police state was financed mostly by tariffs. Printing money was always a popular alternative. The state needs to know your income to create an effective income tax. That is a relatively recent development.
Scott Sumner
Apr 22 2024 at 2:49pm
“No country has ever joined the modern, high-productivity, rich-country club without massive doses of redistribution, and universal government programs for social support and financial security. Not one. Ever.”
This is clearly false. Why would someone even make this claim?
Jim Glass
Apr 22 2024 at 4:13pm
Aw, you know why they make it,
Jim Glass
Apr 22 2024 at 12:38pm
Let’s not get carried away. US federal tax revenue 1939 to 1945 rose more than 7x, from $6.3 billion to $45.2 billion, that’s 20% of GDP. And that doesn’t include the taxes collected after 1945 to service the 6x increase in the national debt.
Maybe you were thinking of the Soviets?
Knut P. Heen
Apr 23 2024 at 8:24am
Mostly Europe. You don’t pay income taxes on income in the black market. Everything else was rationed. The Germans paid people in the occupied areas with printed money, forced people to work for them, and confiscated all sorts of stuff.
Moreover, if the government borrows $100 and pays someone $100, and takes $25 as a kick-back, is the $25 correctly defined as a tax increase? Sounds like the government has borrowed $100 and spent $75 to me.
Only 5 percent of American workers paid income tax in 1939. That changed in 1942 when the Victory Tax was introduced together with the withholding system. Interestingly, Ford produced about 700,000 cars in 1941, but only 160,000 in 1942. What happened? They became employees of the government producing war equipment. The income tax system was introduced during the war, but the income from it started after the war when businesses started producing consumer goods again. That is when the welfare state can begin.
Robert EV
Apr 28 2024 at 2:48pm
It seems to me your argument is actually that a State is a luxury good. Only the most wealthy states can apparently afford state-socialism (because of trying to “keep up with the Joneses”?).
Comments are closed.