Pakistan has been a protracted user of International Monetary Fund (IMF) resources over the last three decades of the 1990s, 2000s and 2010s, and the early years of the 2020s also see the country in an IMF program. Meanwhile, both as a result of domestic politics and IMF program prescriptions/conditionalities, the country has pursued neoliberal policies – downsizing the public sector and pushing for greater privatization, adopting pro-cyclical aggregate demand, liberalize capital flows and reduce support for the trade sector.
This means that not only in Pakistan, but in the program countries in general, and in particular in many Latin American countries, there has not been sustained economic growth and macroeconomic stabilization, even after many sacrifices growth by actively following austerity and pro- economic policies.
Moreover, poverty remained stubborn or increased in many of these program countries, including Pakistan, alongside a sharp increase in income and wealth inequality. Similarly, the neoliberal onslaught also impacted how the fruits of globalization were distributed primarily in favor of wealthy advanced countries that had strong institutional, regulatory, macroeconomic and financial fundamentals to begin with, and unlike countries in development, they were able to manage the inconstancy of the short-term markets. term capital flows in the context of greater liberalisation.
Furthermore, developed countries were at a stage of development that allowed them to be more competitive in terms of global export competitiveness in an environment of trade liberalization, while continuing to provide subsidies, while the rules of the World Trade Organization (WTO) remained weakly applied to them. , unlike developing countries.
Yet, while countries like Pakistan, which continued to formulate policies in an all-encompassing neoliberal mindset and therefore could not derive much benefit from globalization, countries like China and India fared better managed the wave of globalization by not yielding much to neoliberalism and by liberalizing in a very cautious and limited way, and reaped much greater gains in terms of export growth and reduced the negative impact of rapid movements of capital flows short term.
Nobel laureate in economics, Joseph Stiglitz, pointed this out as follows: “In the early 1990s there was huge support for globalization, I think everyone, in developed countries as well as in less developed countries would benefit, the poorest would benefit, the richest would benefit. Since then, globalization has united the world, but against it. …in fact, as we were studying economics at the World Bank and elsewhere, after the last round of trade negotiations…completed in 1994, we realized that many poor countries of the world were actually worse off…and that was to because of the asymmetrical way in which globalization has unfolded.
Advanced countries have demanded that poorer countries open their markets, eliminate their subsidies, but advanced and industrial countries have not fully reciprocated… Economic globalization has brought enormous benefits to a few countries in the world, to China, to India, which have experienced enormous economic growth…they have learned to manage globalization to their advantage. For example, they did not open their capital markets to destabilizing capital flows, yet they were able to attract large volumes of foreign direct investment.
Moreover, the diminishing economic strength of the demos has led to a reduction in their political voice, a weakening of their influence on public policy and, overall, has led to the weakening of democracies in these countries. At the same time, rising inequality means that the influence of elites/oligarchs on public policy has increased over time, mainly due to their active funding of election campaigns and overall funding of political parties.
Neoliberal policies have therefore not yielded results in terms of economic stability. These have in fact created difficulties for efforts to strengthen democracies in countries that have actively pursued such policies. At the national level, a small public sector, a poorly regulated private sector, greater privatization, low levels of capital controls, reduced support for the export sector, austerity and pro-cyclical policies have led to a shrinking public sector and, therefore, a reduced ability of demos to hold elections. governments are responsible for poor economic performance and lack of inclusiveness since the private sector remains largely outside the responsibility of demos, while tax money plays an important role in the environment that forms the basis of the private sector, for example in terms of infrastructure, subsidized finance, and technology produced by the public sector, which is used by the private sector.
And as the experience of development in both China and the Scandinavian countries indicates, for example, a stronger public sector and larger and more efficient public sector enterprises, in an overall environment of non-neoliberal economic policies , have led to sustained and more inclusive economic growth.
Externally, weak economic performance due to neoliberal policies has led to long-term economic dependence on governments in balance of payments management from multilateral partners like the IMF, and in terms of broader trade access and fairer terms of trade vis-à-vis the WTO.
Such continued need or economic dependence necessitates a move away from neoliberal policies. Moreover, a more independent foreign policy and overall stronger economic roots find greater strength when countries are less economically dependent, requiring the pursuit of non-neoliberal and social democratic policies.
Such reliance has also meant that countries become more vulnerable when, in an active neoliberal political mindset, they remain ill-prepared in terms of public sector capacity and strong national economic fundamentals when shocks like the pandemic , the global commodity crisis and wars appear, not to mention the rapid and very dangerous impact in the form of a climate change crisis.
Therefore, developing countries like Pakistan will have to reverse neoliberal policies and adopt more autarkic and social democratic policies. It is only through this political mindset that developing countries can better manage globalization to their advantage.
(The author holds a doctorate in economics from the University of Barcelona; he previously worked at the International Monetary Fund)
He [email protected]
Copyright Business Recorder, 2022