28 November 2008
opinion
Annar Cassam — Annar Cassam takes us through Reagonomics, the World Bank and IMF policies, and the equally bankrupt 'good governance' solutions to Africa's economic woes and the current global financial crisis. She cautions that the neoliberal invisible hand is synonymous with voodoo economics.
"In this world the follies of the rich pass for wise sayings." John Kenneth Galbraith in the The Culture of Contentment
The current financial disaster caused by the banking and housing sectors of the US has led to economic and social consequences which are spreading like cancer from America and Europe to other parts of the globe. In the ensuing panic, the sense of infallibility possessed by true believers in the "quiet theology of laisser-faire", to use Galbraith's expression in the book quoted above, has faded somewhat.
Great gurus such as Greenspan himself have expressed shock and distress at the way erstwhile monetary certitudes have so rapidly unravelled (more of him later). Even academics like Francis Fukayama, self-appointed guardian of cosmic clocks which tell him when human history ends, now offer brutally honest accounts of the reasons why things have fallen apart at the centre of the paradigm, the one and only available to earthlings.
In a severe article in Newsweek (13/10/2008) entitled, "The Fall of America Inc." Fukayma fumed thus:
"Between 2002 and 2007, while the world was enjoying an unprecedented period of growth, it was easy to ignore those European socialists and Latin American populists who denounced the US economic model as "cowboy capitalism." But now the engine of that growth, the American economy, has gone off the rails and threatens to drag the rest of the world down with it. Worse, the culprit is the American model itself: under the mantra of less government, Washington failed to adequately regulate the financial sector and allowed it to do tremendous harm to the rest of the society."
So what else is new, one is tempted to ask today, having observed the same Washington-made mantras produce the same harmful consequences in African countries in the 1980s.
This sense of deja vu is more acute than ever since the G20 Summit met in Washington on November 15 and agreed in principle to act in concert on a number of items; most of these will remain abstractions till the new Obama administration takes office-and the leadership-in January next year.
However, there is one subject which has already been seized upon for immediate action and this relates to the IMF's greatly strengthened position as the main lending agency. As result of the current financial crisis,the IMF is busy bailing out the long queue of developing countries that has already formed at his door, according to the Managing Director, Dominique Strauss-Kahn.
African and Third word countries generally will remember how they were treated by the arrogant gurus of the IMF and the World Bank 25 years ago during those heady days of reaganomics.
In those days, under the pretext of structural adjustment programmes, an ideological brew of monetarism, magical market forces, conditionalities and debt service were forced upon African countries seeking to borrow money from the World Bank and IMF. These programmes resulted in massive impoverishment for mainly rural populations all over the continent.
Massive cuts in education and health budgets and the removal of food and farming subsidies (puny compared to the amounts handed out then- and - now by the US State to the American agro-business sector) imposed as conditionalities led to "tremendous harm" in Africa. They also caused food riots, general strikes, civil strife and political instability.
A new phrase came into being in the early 1980s to describe this type of reaction to World Bank/IMF advice, "IMF riots" as citizens of Sudan,Egypt, Tunisia, Morocco and Nigeria took to the streets to protest against increased food prices and local currencies devalued overnight.
Another new expression also entered the development dictionary to denote the World Bank/IMF expert: "second-rate economists from first-rate universities." This phrase was invented by Joseph Stiglitz to describe his colleagues when he was Chief Economist at the World Bank and as such knew what he was talking about.
Endless expert missions were dispatched from Washington equipped with a checklist of dogmatic demands which never varied: instant currency de-valuation,increased producer prices, import liberalisation, privatisation, market deregulation, cuts in state spending in education and health and food subsidies and so on.
And the consequences everywhere of this pressure were always the same: children out of school,fragile health systems further weakened, workers out of work and the majority of the people living in the countryside more impoverished by the day.
Meanwhile, IMF riots everywhere they happened also produced the same reaction from the authorities: armed police and troops to control those demonstrating against increases in staple food prices.
Third World leaders who dared to question and disagree with these experts were punished, like Prime Minister Michael Manley of Jamaica, "squeezed out like a wet rag" as the Guardian once put it or were treated as dimwits who "did not understand economics." President Julius Nyerere of Tanzania, who argued consistently against IMF ideology and the injustice of debt service, was included in this club.
In October 1985, a few weeks before Nyerere retired from the presidency, the Guardian wrote on the subject of Tanzania's six-year battle with the IMF (18/10/1985):
"President Nyerere has said for years that if Tanzania were to implement a classic IMF programme it would mean putting the army on to the streets to control the anger of the population.....and the government and people have been squeezed progressively every year since 1980. Two successive devaluations, cuts in the state sector (18,000 civil servants sacked), a rise in producer prices and cuts in food subsidies have already been carried out gradually since 1981. But none of this has been enough to persuade countless IMF missions to Dar es Salaam to release the $200million stand-by credit already agreed by the IMF in August 1980. Most other donors have held back waiting for the IMF stamp of approval from Washington."
It should be pointed out here that during this same period,Tanzania's neighbour, Zaire, was being treated with the utmost generosity by the World Bank because of the special relationship that existed between President Mobutu and Washington.As Michaela Wrong explains in her excellent book on the subject "In the Footsteps of Mr.Kurtz", Mobutu could " borrow" as much as he wanted, with no conditionalities asked;where the money went is another story.
And this was not all; added to IMF obduracy and collateral ganging -up by the rest of the Western donors, there was the other sacrosanct demand.... of debt service. By the mid 1990s, African countries were net exporters of US dollars to the tune of 10 billion a year. (In Washington techno-speak, this massive outflow of funds from the poor to the rich was called "negative transfer", an interesting turn of phrase like "friendly fire.)
The situation became as absurd as it was tragic and by 1996, for example, a war-torn country like Mozambique was paying out 33% of its total export earnings to the West in debt service and spending just 3% on education and health.
How African countries were supposed to develop with this level of dis-investment in human resources, our experts could not explain initially. They pondered over this and eventually came up with another mantra: Good Governance and Democracy.
Today, in the year 2008, Washington's neo-liberal mantras have come home to roost, with dire results for ordinary folks yearning to be free.... and and gainfully employed and with health care and a roof over their families' heads. The magical market forces have evaporated, except in the case of those lucky few CEOs of the very same private banks which caused the crash in the first place.
Strangely enough, the hated state is bailing out these same institutions with taxpayers' money so that the fat-cats can still take home their fabulous salaries, bonuses, stock options,etc.
Confused?
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