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IMF doubts prove neoliberal model is not inevitable

Global Times 2016-06-15

A recently released report by IMF researchers reevaluated the organization's long-advocated neoliberalism and its global impact and came to "disquieting conclusions." The report's authors stated they believe that the benefits of some IMF policies, including removing restrictions on capital movement across borders, "seem fairly difficult to establish," while "the costs in terms of increased inequality are prominent, which in turn hurts the level and sustainability of growth."

The conclusions contradict neoliberals' long-held maxim that neoliberalism is the best recipe for economic prosperity after a broad range of countries have been instilled with the notion that neoliberalism is the only option for boosting their economies.

Neoliberalism emphasizes privatization, deregulation and opening domestic markets to foreign competition. This economic ideology particularly stresses the free flow of capital across the globe so as to allegedly better allocate resources and advance economic development.

However, there are consequences of capital account liberalization, the most problematic of which is that it exacerbates income inequality, a tendency that has been demonstrated at both the national and international level. On the national level, capital gains have far exceeded earned income from labor, even further widening the income gap between rich and poor people. Even in developed economies, domestic inequality has persisted as a serious social problem. Powerful examples of fighting inequality include the French "Nuit Debout" social movement, which arose out of protests against the country's proposed labor reforms, and the "Occupy Wall Street" protest in the US, which is against social and economic inequality worldwide.

On the international level, the gap between rich countries and poorer ones is also growing, as the least developed countries' proportion of global GDP has continued to decrease as trade and financial conditions deteriorate. Meanwhile, developing countries are confronted with greater difficulties in overcoming the middle-income trap to become high-income economies. Ultimately, neoliberalism has focused on enhancing the efficiency of capital allocation but has overlooked the distributional effects. Unbalanced distribution has deprived the majority of people of the sense of accomplishment from economic development while ultimately hindering economic progress itself. Even the US, a country that has spared no efforts to push for neoliberalism, has gone through a financial crisis and hasn't been able to achieve robust economic growth in a long while.

Meanwhile, capital gains have realized maximum profits by riding the wave of neoliberalism. The US and some others have pushed neoliberalism because capital gain is in these countries' interest, and abundant capital from the US and other developed countries comes in the form of various multinational corporations. Lifting cross-border capital controls is essentially equal to removing necessary restrictions on multinational corporations from the US and other developed countries.

When a country's domestic economic system cannot withstand attacks from cross-border capital, the government must act to defend itself and maintain domestic economic order. But under the principles of neoliberalism, developing economies are not encouraged or allowed to execute effective guidance and regulation of capital flows, but are required to advocate the abolition of government intervention. In addition, the US' abundant capital and strong government influence helps sustain its leadership in the global system.

Ironically, despite the "liberal" in the term "neoliberal," it's doubtful whether a country can freely choose to adopt neoliberal policies. The US and others have adopted a series of deterrents to promote neoliberalism. For instance, the US has offered more economic aid and has further opened its domestic market to those that follow neoliberalism. But those countries that do otherwise have their products blocked from entering the US domestic market or receive reduced foreign direct investment. The US has also made accepting neoliberalism a major condition for the dispersal of aid to countries and regions in financial or economic crisis, forcefully demanding that they reform in accordance with neoliberal policies.

As a result of this assiduous promotion by the US and some other countries, neoliberalism seems to have enjoyed unprecedented success in establishing prosperous economic development models, and has received enormous respect from many countries. Those who haven't followed neoliberal plans and have sought alternative development paths are usually deemed wrong, or are viewed as a threat to the US, or even are labeled as challengers of world order.

The IMF report has sent out clear signals that neoliberalism hasn't achieved the ideal results it is widely thought to have. Governments and relevant scholars should take note and break the pattern by realizing that neoliberalism is only one of many economic development models. Each country should reflect on its own situation and phase of development and should take viable measures to advance economic growth, regardless of whether those measures are neoliberal, non-neoliberal or even anti-neoliberal. Neoliberalism is optional, not inevitable.