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The International Monetary Fund (IMF) has been naughty. In its flagship magazine Finance & Development, it boldly asked, “Neoliberalism: Oversold?", and did everything but discuss that. What it did do was hand a gift to partisans who now have an IMF-certified stick to beat anyone who supports the mainstream economic consensus of the past three decades.

Outside humanities research departments, neoliberalism is used mostly as a term of abuse by rebels without a clue, like the mainstream media, though it has a much older vintage. It is a label used by the far left to identify all economic points of view that are not its own. Confusingly, people sometimes refer to the same people—Tony Blair-led New Labour, for example—as neocons and neoliberals, whatever is more fashionable.

Going back to the IMF article, so what was discussed? Two things to be precise—open capital accounts and fiscal consolidation.

There was little new in the case against open capital accounts—these arguments that are pretty mainstream among academics and policymakers alike. Since the 1994 tequila crisis in Mexico and the 1997 Asian financial crisis, the IMF itself has been more cautious about advocating free cross-border flows. In fact, it came out with a fairly sceptical official position on capital flows in November 2012, which was basically to tell countries: to each its own.

On fiscal consolidation, it rightly notes that fiscal policy could have been looser in the US, UK and Germany. But by making a broadside against fiscal consolidation, you ignore the fact that the kind of fiscal space enjoyed by some advanced economies is the exorbitant privilege of countries with reserve currencies. Few countries, besides these three plus Japan, are likely to enjoy the kind of fiscal space that will allow them to delay fiscal consolidation in the face of large public debt. For the rest of the world, fiscal consolidation is not an ideological choice, but a necessity in the face of unwilling lenders.

But are these two really part of the so-called neoliberal agenda? While a small state or fiscal consolidation (two distinct if related issues) can be identified with the broad stream of political-economic consensus since the 1980s, no such consensus has existed over free capital flows outside the confines of the purely theoretical literature within international economics. Indeed, India and China, representing 40% of the world’s humanity, never signed up for free capital flows despite the former being under an IMF programme in the early 1990s.

As an economic doctrine, a loose term like neoliberalism will mean different things to different people. But I think it would be fair to say that the 10-point Washington Consensus is the closest you can come to a set of policy prescriptions that have been in vogue across the world over the past three decades, the neoliberal age if you will.

Authored by economist John Williamson in 1989, it was a list of 10 policies that represented the lowest common denominator of advice given by the IMF-World Bank institutions in that era:

• Fiscal discipline

• Reorientation of public expenditures from non-merit subsidies to basic health, education and infrastructure

• Tax reform

• Financial liberalization

• Competitive exchange rates

• Trade liberalization

• Openness to foreign direct investment

• Privatization

• Deregulation

• Secure property rights

The Consensus went on to become a fierce ideological battleground and came to attract derision in popular discourse—more so after the 1997 Asian financial crisis and the 2001 collapse of the Argentine economy. As Williamson lamented in 2004, “arguments about the contents of the Washington Consensus have always been secondary to the wave of indignation unleashed by the name that I pinned on this list of policy reforms... [calling it Washington] I fear, [was] a propaganda gift to the old left".

Pinning the blame on Williamson’s list was odd, for it did not even suggest free cross-border flows—the villain of the Asian crisis—restricting its advice to openness to foreign direct investment (FDI). Argentina, on the other hand, while embracing many of the tenets of free markets, was hardly a picture of fiscal rectitude. And in both cases, exchange rates were conspicuously overvalued—as opposed to a competitive one advocated by Williamson.

But then there was nothing surprising about the reaction. Most of those who pilloried the Washington Consensus read from the same hymn book as the anti-globalization rioters of Seattle in 1999. Concern for the third-world poor was a fig leaf to hide their visceral hatred for the West and markets—who gave a damn whether globalization had resulted in the fastest rise in global standards of living in world history.

Looking objectively at the Washington Consensus, you will find little that is actually controversial or undesirable. If not fiscal discipline, then what? Run large deficits and pray that it won’t be inflationary and/or investors would continue to roll over the debt at reasonable terms? As I said before, the kind of fiscal space that allows you to be ambivalent about deficits is a luxury enjoyed by a select few countries with reserve currencies.

The priorities for public expenditure as suggested by Williamson are surprisingly progressive. Would you rather have less budgetary allocation for health, education and infrastructure and more for free electricity or for bailing out Air India and MTNL?

As for tax reforms, getting the right level of marginal rates and tax base is more of a political rather than economic decision. You can quibble whether the super rich should be taxed at 40% marginal rate or 60% marginal rate—income tax tends to be a small portion of total government revenues anyway.

However, few serious politicians or economists today advocate a return to the marginal tax percentage rates in the high 80s or 90s that we had till the 1980s. Particularly in India, punitive marginal tax rates left a legacy of black money that we are still struggling with. Maybe a future of a robotized economy with a large army of unemployed would necessitate a higher marginal rate and a narrower tax base, but we are not there yet.

Unhindered financial liberalization is an Anglo-Saxon disease. The US and UK have a genuine problem with the size of their financial sectors, while other developed economies are mostly satisfied with theirs. In the developing world though, the small size of the financial sector and the lack of financial inclusion that goes with it, is a real constraint on the upward mobility of the poor. Prime Minister Narendra Modi’s push for the Jan Dhan Yojana is not an ideological project, but a rational policy response to a problem faced by his voters.

The next three prescriptions—a competitive exchange rate, trade liberalization and FDI—have been essential ingredients in the miraculous Chinese growth story. Not even the most stringent dyed-in-the-wool leftist would argue against these three.

Privatization and deregulation are possibly the two policies that attract most scorn from the old left. That Margaret Thatcher was the pioneer of privatization in the 1980s did not help matters—few personalities attract the sort of murderous hatred of the hard left as Mrs T.

Privatization remains a politically fraught issue, mainly because of resistance from public sector workers and government officials unwilling to part with the influence that comes with controlling public enterprises. Few argue against the efficiency and the money-saving potential of privatization—losses of badly run public enterprises are often onerous for the exchequer.

Deregulation, or easing entry and exit barriers for business, also faces a lot of resistance—while India lowered the entry barriers in 1991, it took another quarter of a century to remove the exit barriers.

High regulation suits government officials just fine—it gives them great discretionary power and rent-seeking opportunities. Moreover, entry barriers find political support from incumbent businessmen looking to avoid competition. As for exit barriers, the biggest supporters are organized labour and insolvent promoters unwilling to pay up their creditors. As a result, inefficient loss-making enterprises stay in business, while more efficient ones are denied entry.

The case for property rights argues itself.

The policy regime of the past few decades, particularly in the developing world, has a lot to be proud of. In 1980, 44% of the world’s population was believed to be living in extreme poverty. That number is now estimated to be down to just 9.6%, as of 2015. A decline of the same magnitude took more than a century and a few decades before 1980.

A lot of the current debate, and the IMF’s recent article, seem to be driven by the economic malaise facing a handful of advanced countries. Since many of these countries are also home to the best economic research departments, their research priorities also reflect the ongoing concerns in those societies. But inequalities in the US or UK should not blind us to the stupendous record that neoliberal policies have had in raising growth and eradicating poverty in most of the developing world.

High trust and low corruption societies in the US or Western Europe might be able to make a relatively painless return to a more regulated and closed economy. But developing economies, lacking in state capacity and rife with corrupt bureaucracies, cannot and must not try to turn back the clock. The human and economic cost is simply too big.

As a Financial Times editorial noted, the IMF made “a misplaced mea culpa for neo-liberalism". The article’s title only strengthens the voices of populists and their obedient activists. Partisans are not going to refer to the main text; a clickbait headline from the IMF is enough ammunition for them.

Ankit Mital is an economist and a lapsed academic. He is currently writing a book on the 1991 economic crisis and liberalization.

His Twitter handle is @Molto_Vivace_88

Comments are welcome at feedback@livemint.com

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