In our new book Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017) – Thomas Fazi and I argue that a new progressive agenda would see the abolition of the IMF and the World Bank and the creation of a new multilateral institution that is entrusted with ensuring poor nations can access necessary funds to prevent their societies collapsing. This organisation would not be a bulwark for inflicting neoliberal policies on the poorer nations, but rather, a body that assisted nations in developing first-class health, education and environmental care capacities and infrastructure in a fully employed environment. It would help insulate such nations from the vicissitudes of global finance by supporting capital controls and other anti-speculative policy tools. The current multilateral framework dominated by the likes of the IMF and the World Bank have failed categorically in this regard. Recent research, which, in part consolidates a rich body of research going back to 1987, has found that the so-called ‘structural adjustment policies’ that accompany assistance from these organisations have materially damaged child and maternal health in the nations where these conditionality programs have been imposed. The IMF likes to talk about intergenerational fairness, especially in relation to the alleged burdens that fiscal deficits leave for future generations, but then they support and implement policies that unambiguously damage the health and well-being of children in poorer nations, while allowing real resources to be sucked out of those nations to the benefit of the global rich. A criminal enterprise.
The IMF claims that it is:
… an organization of 189 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world.
On any measure across most of those criteria, the IMF has failed dramatically.
While it purpose was well-defined at the Bretton Woods Conference held by the UN in July 1944 within the context of the emerging fixed exchange rate system – it would provide funds to nations short of foreign reserves to allow them to stabilise their exchange rates within the agreed parities – the collapse of that system in August 1971 meant that the IMF was rudderless.
It had no direction or purpose.
So it invented a new purpose, which was consistent with the growing neoliberal dominance in the economics profession and its infiltration into policy circles.
It became a neoliberal attack dog, an enforcer of neoliberal policies and concepts, a defender of private speculative capital, part of the elite resource grab from the poorest nations.
The imposition of its so-called ‘structural adjustment policies’ (SAPs) has been a disaster. The IMF and the World Bank, both institutions that serve to facilitate these surplus movements from poor to rich.
Developing countries seeking finance from the IMF and the World Bank have been forced to adopt neoliberal policies that included harsh austerity measures – similar to the ones being imposed today on Greece today – as a condition of international support.
The programmes of structural adjustment and austerity imposed by the IMF on developing countries in the 1980s and 1990s undermined many of the achievements of the previous growth model, driving living standards down and poverty levels up.
By the mid-1990s, no less than 57 developing countries had become poorer in per capita income than 15 years earlier – and in some cases than 25 years earlier. In almost all countries where austerity-driven policies were imposed, poverty and unemployment grew, labour rights deteriorated, inequality soared, and financial and economic instability increased.
Some recent studies shone a different light on this issue.
First, there was a study published in the journal Public Health Reviews (July 10, 2017) – Structural adjustment programmes adversely affect vulnerable populations: a systematic-narrative review of their effect on child and maternal health – by academic researchers Michael Thomson, Alexander Kentikelenis and Thomas Stubbs.
The study reviewed the vast array of “empirical evidence on the effect of structural adjustment programmes on child and maternal health respectively” that has been accumulated over the years.
They note that SAPs (via IMF, World Bank etc):
… have typically set the fiscal parameters within which health policies operate in developing countries.
They note that the first major study by UNICEF researchers, published in 1987 (“Adjustment with a human face Vol. I: protecting the vulnerable and promoting growth”) “found adverse child and maternal health outcomes attributable to the means by which economic adjustment had been implemented”.
These results have been repeated many times since by other researchers.
The problem is that the “loans” required by nations to stabilise their exchange rates or fund debt obligations, require nations:
… to reform various macroeconomic and fiscal policies according to a neoliberal rubric, typically cohering around economic stabilisation, trade and financial liberalisation, deregulation, and privatisation
The social costs of such conditionalities, which are designed to ensure the nation can pay back its debts to the likes of Wall Street investors etc, are high.
Further, “the recidivist nature of program participation also suggests that gains to macroeconomic stability are underwhelming”.
This refers to the fact that the SAPs lock nations into a vicious cycle of poverty. They strip resources that are essential for development, load the nation up with unpayable debts, that are then rolled over with even more onerous conditions.
The upshot is that the economies choke under the burden of debt and decaying public infrastructure while the first world sucks out resources and profits as fast at it can.
The study notes that:
… rigid fiscal targets stipulated under structural adjustment loans often take precedence over social spending, and that aid funds are siphoned from health and social sectors to repay debt or increase reserves …
The notion that IMF fiscal consolidation is conducive to growth is likewise contested … with implications on revenues available for health spending.
Its meta study of the extant research leaves no ambiguity of the outcomes of these SAPs in terms of child and maternal health.
In terms of child health:
1. “Eight of the ten studies found a detrimental relationship between structural adjustment and child health outcomes, while one found no association and one established a beneficial effect.”
2. Of the one study that found a beneficial effect, “it erroneously claims that its two-way fixed effects approach adequately addresses these methodological concerns” – in other words, disregard its conclusion.
3. One of the studies (see below) “finds the presence of an IMF programme decreases the protective effect of parents’ education on child malnourishment by at least 17% … this is due to IMF reforms that make it harder for parents to reap the benefits of their education, such as wage contraction and welfare retrenchment.”
4. Other studies “attribute greater levels of malnutrition in children born between 1995 and 1998 than those born between 1988 and 1991 to government health expenditure cuts experienced during structural adjustment programmes between 1992 and 1994.”
5. Another study “finds that structural adjustment was implemented with greater severity and speed in Argentina than in Uruguay, and that the more gradual and modest reforms in Uruguay were associated with better health outcomes: Uruguay’s infant and under-5 mortality rates declined at twice that of Argentina’s throughout the 1980s.”.
In terms of maternal health:
1. “All studies investigating the effect of structural adjustment on maternal health outcomes … show that structural adjustment has an adverse impact on maternal mortality.”
What are the “plausible mechanisms” that deliver these adverse outcomes?
The direct ways in which SAPs lead to deleterious outcomes are:
1. SAPs force governments to cut “health spending”, which reduces the “quality and quantity of services provided to children and mothers”.
2. SAPs create “medical supply shortages … loss of human capital … and replacement of defunded maternal health services with ineffective traditional birth attendant programs”.
3. Fiscal health cuts meant that “responses to HIV/AIDS in Sub-Saharan Africa were significantly impaired”.
4. SAPs compromise “the healthcare workforce, thereby altering the quality and quantity of healthcare staff available to treat child and maternal health conditions” – “Reduced wages and job security often creates incentives for health workers to move elsewhere, producing ‘brain drain’”.
5. SAPs impose “cost-sharing or user fees” to reduce deficit spending, which “increase the range of services available to middle classes and wealthy elites … [but] … greatly reduce access to even the most rudimentary health services for the poor”
6. User fees have been “associated with greater incidence of stunted growth in children … dramatic reductions in women’s use of STI clinics … and barriers to access for antimalarial medication and antibiotics.”
7. It has been shown that in “20 African countries employing user fees for health … abolition of fees could prevent an estimated 233,000 under-5 deaths annually or 6.3% of such deaths”.
8. Increased private provision (scrapping of public health services) increases “access to services for the middle and upper classes, but raises financial barriers for poor women and children as providers shift to a profit-driven business model
The indirect ways include:
1. “Trade and capital account liberalisation” – which allows profits to leave nations more easily.
2. “Privatisation … result in public sector job loss that is not necessarily substituted by the establishment of new positions in the private sector” and the resulting unemployment leads to reduced health outcomes.
3. The strain of prioritising “debt servicing” reduces “spending dedicated to improving child and maternal health outcomes”.
Another study, recently published in the Proceedings of the National Academy of Sciences (May 15, 2017) – Impact of International Monetary Fund programs on child health – (by Adel Daoud, Elias Nosrati, Bernhard Reinsberg, Alexander E. Kentikelenis, Thomas H. Stubbs, and Lawrence P. King) – noted that:
… parental education is located at the center of global efforts to improve child health … [but] … Under reforms mandated by IMF structural adjustment programs, it may become harder for parents to reap the benefits of their education due to wage contraction, welfare retrenchment, and generalized social insecurity.
The researchers used conventional multi-level modelling techniques (I have used these myself) with a sample size of around 2.8 billion (around 50 per cent of the world’s population in 2000).
They considered five dimensions of child health:
.. children’s access to nonhazardous sanitation, improved water sources, and vital health care (including immunization), safe housing, and whether they are sufficiently nourished.
They explore the ” the impact of International Monetary Fund (IMF) programs on children’s health, mediated by their parents’ education.”
The fact is that “Educational attainment, regardless of whether it is the head’s or the mother’s, correlates highly with poverty; less educated respondents consistently have lower socioeconomic status than their educated counterparts.”
But the hypothesis that the study investigates is whether the IMF SAPs undermine the positive relationship between parental education and children’s health outcomes via increased poverty.
I won’t go into all the nuances of the study – you can investigate yourself if interested.
They found that:
1. “IMF programs erode the protective effect of parental education on child health, especially in rural areas.”
2. In urban areas, “children of educated parents still have better health than their peers with uneducated parents. However, this gap shrinks under programs.”
3. How much damage do the IMF programs cause?:
For rural populations, the protective effect of parental education decreases significantly when countries participate in IMF programs. Children face higher odds of suffering from deprivation in four out of the five dimensions. In the absence of a program, children living in an educated household have a reduced odds of being malnourished by 38% … compared with children of uneducated households; under adjustment, this beneficial effect drops to 21% … In other words, the presence of IMF conditionality erodes the protective effect of education against child malnourishment by no less than 17% in rural contexts. This effect is comparable across the other deprivations. In shelter deprivation, the presence of IMF yields an erosion of 15%; in sanitation, the decrease is 18%; and in health (healthcare including immunization), the loss is 24%.
Why is it that “austerity undermines the benefits and value of educational capital”?
1. Enforced fiscal cutbacks undermine spending on education – so “fewer parents will gain access to education” – leading to elevated levels of unemployment, disclocation and poverty.
2. Even when a parent has received education, “IMF-mandated government wage bill ceilings, which can limit the numbers of teachers in public schools, leading to staff shortages, reduced teaching quality, and further devaluation of education” occur.
3. “under austerity, governments spend less not only on education but also on the protection of labor” leading to poor wage outcomes, and “downward mobility for the middle classes”.
4. “degrading employment prospects wrought by economic deregulation curb” reduce return on human capital and thus reduce capacity of educated parents to help their children.”
5. Urban outcomes are slightly better because under austerity, “governments will channel scarce resources toward cities rather than villages, as these are major sites for corporate profit, and thus can generate further tax revenue”.
6. Water privatisation “imposed by the IMF in developing countries” benefits those with higher incomes (which are the educated) and poorer people are forced to use compromised water sources.
7. “under IMF programs, government subsidies for immunization, healthcare, and food are often the first to be dismantled”
So there you have it. I could have catalogued many similar studies that have documented the failure of the IMF over a long period. The meta study cited above includes several such studies.
While the neoliberals bang on endlessly about the supposed burden fiscal deficits will leave for our children and their children they support and implement policies that unambiguously damage the health and well-being of children in poorer nations, while allowing real resources to be sucked out of those nations to the benefit of the global rich.
As Modern Monetary Theory (MMT) notes, the ultimate constraint on prosperity is the real resources that a nation can command, which includes the skills of its people and its natural resource inventory.
If a country’s resource base is very limited, there is relatively little that a country can do to pull itself out of poverty even if the government productively deploys all the resources available to the nation.
These countries may find no market for their currencies and may be forced to trade in foreign currencies.
In this sense, it should be noted that not all currencies are equal.
However, this is not a balance-of-payments constraint as it is usually intended. It is a real resource constraint arising from the unequal distribution of resources across geographic space and the somewhat arbitrary lines that have been drawn across that space to delineate sovereign states.
The world must take responsibility to ensure that it alleviates any real resource constraints that operate through the balance of payments.
Imposing austerity on these countries is no solution.
The evidence shows that the so-called structural adjustment program (SAPs) that the IMF and World Bank typically impose on poor nations struggling with balance-of-payments problems – based upon fiscal austerity, elimination of food subsidies, increase in the price of public services, wage reductions, trade and market liberalisation, deregulation, privatisation of state-owned assets, etc. – have had a disastrous social, economic and environmental impact wherever they have been applied.
Not only have they kept millions in persistent poverty but they also foisted unsustainable levels of external debt on these nations, which were then used to justify the imposition of destructive export-led production strategies that in many cases devastated the existing subsistence systems and led to large-scale environmental ruin (for example, massive deforestation in Mali).
Though masqueraded as development programs, SAPs have actually acted as giant siphons, sucking out wealth and resources from these countries and pumping it into the pockets of the rich elites and corporations in the US, Europe and elsewhere.
To add insult to injury, in many instances these policies also wrecked the borrowing countries’ local productive sectors, thus creating increased import and debt dependencies.
Clearly, the IMF and the World Bank have outgrown their original purpose and have ceased to play any positive role in the management of world affairs.
Rather, their interventions have undermined prosperity and impoverished millions of people across the world, and continue to do so – mostly, but not exclusively, in the developing world (as the Fund’s participation in Greece’s bailout program testifies).
In this context, a new multilateral institution (or series of institutions) should be created to replace both the World Bank and the IMF, charged with the responsibility of ensuring that these highly disadvantaged nations can access essential real resources such as food are not priced out of international markets due to exchange rate fluctuations that may arise from trade deficits.
There are two essential functions that that need to be served at the multilateral level:
1. Development aid – providing funds to develop public infrastructure, education, health services and governance support.
2. Macroeconomic stabilisation – the provision of liquidity to prevent exchange rate crises in the face of problematic balance of payments.
A progressive multilateral institutions would aim to reduce (and ultimately eliminate) poverty through economic development but within an environmentally sustainable frame.
We outline such a model in Reclaiming the State: A Progressive Vision of Sovereignty for a Post-Neoliberal World (Pluto Books, 2017).
That is enough for today!
(c) Copyright 2017 William Mitchell. All Rights Reserved.