Neoliberalism: Oversold?


Jonathan D. Ostry, Prakash Loungani, and Davide Furceri over at the IMF (yes, that IMF):

MILTON Friedman in 1982 hailed Chile as an “economic miracle.” Nearly a decade earlier, Chile had turned to policies that have since been widely emulated across the globe. Th e neoliberal agenda—a label used more by critics than by the architects of the policies— rests on two main planks. Th e fi rst is increased competition—achieved through deregulation and the opening up of domestic markets, including fi nancial markets, to foreign competition. Th e second is a smaller role for the state, achieved through privatization and limits on the ability of governments to run fi scal defi cits and accumulate debt.

There has been a strong and widespread global trend toward neoliberalism since the 1980s, according to a composite index that measures the extent to which countries introduced competition in various spheres of economic activity to foster economic growth. As shown in the left panel of Chart 1, Chile’s push started a decade or so earlier than 1982, with subsequent policy changes bringing it ever closer to the United States. Other countries have also steadily implemented neoliberal policies (see Chart 1, right panel).

There is much to cheer in the neoliberal agenda. The expansion of global trade has rescued millions from abject poverty. Foreign direct investment has often been a way to transfer technology and know-how to developing economies. Privatization of stateowned enterprises has in many instances led to more efficient provision of services and lowered the fiscal burden on governments.

However, there are aspects of the neoliberal agenda that have not delivered as expected.

More here.