Resisting Market Fundamentalism! Ending the Reign of Extremist Neo-Liberalism

Vol. 7, No. 2

April, 2004

by Soren Ambrose
50 Years Is Enough Network

Resisting Market Fundamentalism!
Ending the Reign of Extremist Neo-Liberalism
By Soren Ambrose
50 Years Is Enough Network

This year’s 50 Years Is Enough Network conference (April 22-23, 2004 in
Washington, DC) is called Resist Market Fundamentalism: Retirement
Planning for the IMF & World Bank at 60.

We have heard a lot about fundamentalism in recent years. Usually it’s
religious fundamentalism we hear about, especially when, as in the case of
Christian, Islamic, Jewish, or Hindu fundamentalism, it has become a factor in
global politics. In general, religious fundamentalism is characterized by a
strong belief in a well-defined set of beliefs set out in well-established written
texts (though there are disputes within each). It is prescriptive, in that it
asserts, often quite boldly, a comprehensive view of the world including moral
guidelines for behavior. It fosters an assertiveness on the part of its believers,
and usually includes a claim on political and territorial control. And, just as
importantly, it tends to reject compromise with alternative points of view.

The economic prescriptions of the International Monetary Fund (IMF) and the
World Bank are sometimes called – by critics -- market fundamentalism. The
differences between an economic ideology and a religious and cultural belief
system are obvious enough; the power of the comparison lies in the light it
sheds on the grip a simple theory of economics has achieved on economists,
policy-makers, consumers, and entire countries. Privatization, cuts in public
services and subsidies, trade and investment deregulation, mass layoffs,
hikes in interest rates: all because, as John Mihevc of Kairos Canada put it in
a ground-breaking study comparing the two kinds of fundamentalism, “the
market tells them so.” The fact that these measures almost never deliver any
of the benefits promised, and instead exacerbate the gap between the
wealthy and impoverished, often provokes activists to refer to the old fable:
“The emperor has no clothes!” But the power of belief in a body of rules that
has been endlessly repeated and attested to by authority figures from
professors to politicians blinds many to what is plainly before the eyes.

The basic tenet of market fundamentalism is that the most efficient way to
deliver services and goods, to keep an economy humming, to provide for
members of society, and even, in its more advanced formulations, to maintain
social order, is to conceive of virtually all human activity in commercial terms,
with values negotiated between the contracting parties without outside
interference, according to the laws of supply and demand. The market
fundamentalist seeks to solve any imbalance by trying to reduce the role of
government and expand the options of those operating in the marketplace.

Market fundamentalists insist that failures to provide adequately for people
result not so much from imbalances in wealth or power, but in restrictions
placed on the “invisible hand” of market logic -- restrictions created by
governments becoming economic actors who do not obey market logic, or
through government’s efforts to regulate private economic actions. Hence the
demand is usually to “free” the markets so they can reach their own potential
and so create a healthy economy: free markets, free trade, free enterprise.

These catch phrases are appealing. But the assumptions that underlie them
are many: government regulation discourages creativity; in an unregulated
market there will be enough jobs and resources for all, and their distribution
will be adequate for general survival and stability; private businesses are
more efficient than public enterprises; the profit incentive should be, and is,
people’s primary motivation; natural resources and the things people and
societies value will be preserved by economic actors. There are reasons to
doubt all these positions. Market fundamentalism also assumes that all the
parties in the market have relatively equal strength, or at least complimentary
capacities. We know that is not true, and that when rules are scaled back, it is
those who are strongest that end up being most free to exploit the new
system. “Free market” theories may work tolerably well among equally-
developed countries, but applied to countries that have been marginalized in
the global economy, often through external exploitation and political
domination, these theories fail entirely to respond to the context and
challenges of the global economy.

Market fundamentalism isn’t new, of course: the ideas were born in the 18th
century, with the works of Adam Smith. But even Smith recognized social
limits to the application of his theories. It was not until the 20th century that the
relative sophistication found in Smith’s work could be emptied out by theorists
like Milton Friedman (of the famous “Chicago school” of the 1960s and
1970s). The result was a stripped-down hyper-capitalism: deregulate
business and trade, disempower government, and allow the energies of
entrepreneurship and free-flowing capital to “lift all boats.” After Friedman and
his colleagues were given free rein by the Pinochet dictatorship in Chile, the
model was picked up by Prime Minister Margaret Thatcher of the U.K. and
President Ronald Reagan in the U.S. in the early 1980s.

The IMF and World Bank, ever faithful to their most powerful shareholders,
soon adopted the ideology in the bailouts and structural adjustment programs
that took root at the same time. The “Chicago school” theories, called neo-
liberalism or ‘trickle-down’ , rapidly became the reigning orthodoxy in
economics departments around the Western world, and in a matter of a few
years it was hard to remember that economists had ever heard of Keynes and
other economists who called for balanced government intervention in
markets, much less Marx or European social democracy. That the implications
of the neo-liberal theory were so favorable for multinational corporations and
wealthy investors encouraged lavish funding of conservative “think tanks” and
the rapid growth of business school programs (with the Masters in Business
Administration, or MBA, becoming a standard requirement for many desirable
jobs) which promoted the new orthodoxy.

So why should a successful economic theory – if success is gauged by
breadth of its acceptance rather than its power to explain real-world events –
be tagged with the label “fundamentalism”? Free market economists, after all,
range from the extreme, such as the most formulaic thinkers at the Cato
Institute, who simply exalt business and vilify government, to the subtle, such
as Joseph Stiglitz, the former World Bank Chief Economist who won his Nobel
Prize for outlining the distorting effects of imbalances in how much information
market actors have access to. It becomes market fundamentalism at the point
when powerful global actors perpetuate the more vulgar brand of neo-
liberalism, and are unmoved by evidence, logic, or vocal opposition. Stiglitz,
in fact, was fired by the Bank in 2000, at the insistence of U.S. Treasury
Secretary Lawrence Summers, for his high-profile attacks on the IMF’s
commitment, especially in the East Asian countries during their 1997-98
financial crisis, on raising interest rates and slashing jobs – in short, for
attacking the most dangerous form of market fundamentalism.

The fundamentalist mindset is evident in the failure, or refusal, to consider
whether different social and political contexts warrant re-examination of the
philosophy’s assumptions and requirements. The re-making of most
countries’ economic policies under the guidance of the IMF and World Bank –
from impoverished Africa to the former Soviet bloc – in the image of the U.S.
economy has failed both to take into account how the U.S. developed and
what the real economic possibilities and needs of people in other countries
are.

What hath market fundamentalism wrought?

Two recent examples of IMF interventions in Africa demonstrate how absurd
and destructive market fundamentalism can be:

• In Uganda in 2002, IMF officials advised the government not to accept
program funding from the Global Fund for HIV/AIDS, Malaria, & Tuberculosis.
Their reasoning was that the grants, by raising expenditures on healthcare,
would introduce too much government spending and so distort the internal
markets, possibly leading to inflation. Economist Jeffrey Sachs, a onetime
market extremist himself, helped prod U.S. Treasury Secretary Paul O’Neill,
on a trip to Uganda, to denounce the IMF’s position. It nevertheless took
Ugandan officials several months to persuade their own Finance Minister to
ignore both the IMF and World Bank and accept the grants.

• In 1999, the IMF mandated that Malawi should restructure its strategic grain
reserve – the food stocks the country stored to guard against famine. Instead
of being a public agency, it would become a quasi-private entity, owned
largely by the government still, but run as an independent corporation. The
agency was provided with no initial capital, and so sold off its grain holdings
in 2001, at a time of abundance, in order to capitalize itself. When unexpected
bad harvests occurred the following year, the country was left with no
reserves. The IMF tried to duck blame for the resulting famine that caused
1000 deaths by saying that it did not order, or suggest, the grain sales. But the
problem was two steps back, in the notion that something as basic and non-
commercial as a strategic food reserve should be subjected to market forces.

The most recent and prominent manifestation of the belief in markets has
been the World Bank’s private sector development (PSD) strategy and its
resulting emphasis on turning over the provision of basic services to private
companies and organizations. With the development of the PSD in 2001-02,
the Bank proposed that every program under its International Development
Association (IDA), which makes very low-interest loans to the world’s poorest
countries, should have a substantial private-sector component. In practice this
has meant privatizing or contracting out basic services like education,
healthcare, and water, putting very vulnerable people’s most basic needs at
the mercy of market forces. Campaigns against water privatization have
developed particular strength in many countries where the Bank is peddling
this advice – Ghana, Bolivia, Nicaragua, South Africa, Kenya, the Philippines
– and there are signs that the Bank may have to back down on this blanket
submission to the market.

One of the most obvious differences between religious fundamentalism and
market fundamentalism is that the former makes its claims for codes of
behavior, which are essentially matters of opinion, and for spiritual ideas,
which are matters of faith that cannot be tested. Market fundamentalism,
drawing from neo-liberal economic theory, makes claims about quantifiable
and observable realities. Indeed, much of its authority is rooted in the claim of
economics to the status of science. Even if it is a “social science,” it should
have theories and results that can be tested.

There is no shortage of statistics, nor any shortage of opportunities to observe
that more than 20 years of IMF/World Bank structural adjustment policies and
large infrastructure projects have not delivered on their promises – that in fact
people are getting poorer, and the wealth created in societies where the
institutions operate is flowing largely to foreigners and a thin elite. The World
Bank is the largest generator of such statistics in the world, and can in effect
bury critics in numbers, or manipulate them. But even the Bank is no longer
trying so hard to convince its audiences that its plans are working; instead it is
trying to shift the blame to Northern governments which maintain trade
barriers and agricultural subsidies -- thereby violating the rules of free
markets and denying economic opportunities to Southern farmers and
exporters. It is good to point to the hypocrisy of Northern governments which
have long championed “free trade,” but it requires a substantial amount of
disingenuousness for the World Bank to be the one doing it, since the Bank
was the lead agent in forcing developing countries to adopt trade
deregulation, putting themselves at the mercy of Northern trade policies. The
Bank conveniently forgets to explain why it devoted so much energy and time
to prodding Southern governments into a game – international markets --
whose rules everyone presumably knew were fixed.

So the question we are left with is: do those controlling the global economy
really believe in market fundamentalism, even as it becomes apparent that its
promises are empty? Or is it that the doctrine of market fundamentalism, and
the habits of thought it encourages in people around the world, are consistent
with maintaining structures and rules that benefit private investors,
multinational corporations, and Northern politicians – so they are content to
preserve the illusions? In other words, is market fundamentalism the vulgar
fantasy that is sold to the masses to keep them quiet, while the elites continue
to use the levers of power to structure markets and entire economies to
benefit themselves?

The infallibility of the market is a myth that has been repeated to us over and
over for many years now. So when we say RESIST MARKET
FUNDAMENTALISM, we are not just calling for advocacy for a new global
economic system and a recognition of the inadequacies of the current one.
We are also reminding ourselves that we must be vigilant against letting the
corrosive “conventional wisdom” that has been framed for us by the
multilateral institutions, reactionary politicians, corporate interests, and
universities from dominating and determining our own perspective. In other
words: if we see a naked man walking down the street, we need to ask
ourselves if that really might be a deluded emperor instead of some sort of
failure of our own vision to adjust to the splendid realities of the new age.

^TOP

50 Years Is Enough Network - 3628 12th St NE, Washington, DC 20017 USA
Tel: 202-IMF-BANK (202-463-2265) Email: info@50years.org