Neoliberalism and the Washington Consensus

It's nice to be able to create content, since I've always wanted to ask question like this on Catallarchy but would've been practically trolling to put this in the comments.

I'm curious as to how Libertarians like yourselves deal with the results of Neoliberalism and the Washington Consensus. As far as I can tell, the "structural adjustment programs" that have been shoved down the throat of every country that needs some IMF money are almost perfectly in line with everything that Libertarians advocate as policy. Here's a list of the basic conditions (culled from wikipedia):

* Cutting social expenditures
* Focusing economic output on direct export and resource extraction,
* Devaluation of overvalued currencies,
* Trade liberalization, or lifting import and export restrictions,
* Increasing the stability of investment (by supplementing foreign direct investment with the opening of domestic stock markets),
* Balancing budgets and not overspending,
* Removing price controls and state subsidies,
* Privatization, or divestiture of all or part of state-owned enterprises,
* Enhancing the rights of foreign investors vis-a-vis national laws,
* Improving governance and fighting corruption.

With the exception of last one (which is really so vague as to be meaningless) I should say that I've probably heard every single one of these programs defended on Catallarchy and can't remember any of them being disputed by any non-left-Libertarians (I could easily be wrong on that last one, though.) These programs have almost always been unmitigated disasters (indeed, the countries which have developed have always RADICALLY violated these rules) and so I guess i fail to see why this stuff hasn't just basically ended the economic argument for Libertarianism altogether. Actually, that's disingenuous, because i think I do understand but for a group as intellectually honest as ya'll, well I don't get it.

I suppose someone could get on here and argue that they haven't all been unmitigated disasters (there might be an example of certain exceptions, though I haven't seen them outside of city-states.) More likely though is the standard marxist-style claim that every single country this has been tried on (and there have been a LOT) has simply had some critical flaw in it that nobody could've seen beforehand that prevented our magic from working. I'm happy to refer anyone who makes this argument to some overheated rhetoric (probably culled from No Treason) about how we "can't afford to keep trying these horrific experiments when the consequences are so deadly" and "when will we stop imposing our utopias on other people's lives when we wind up killing them."

One last thing, and this could get controversial: I think the deaths caused from these programs and programs like these (which we can just go ahead and call "free market capitalism" unless anyone can present a good case why we shouldn't) are plausibly higher than those caused by marxism/communism as an economic system. Let me explain what I mean: while I probably agree with most the people here that something like the Stalinist purges are derivable from Marxism (that nonsense about a "Vanguard party" will probably lead inexorably to totalitarianism) I'll say that has to do with Marxism as a socio-political system rather than an economic one. With this same spirit of fairness in mind, I don't attribute to Capitalism the 2 million+ killed by the US in Vietnam. Famines attributable to communism (like in China) are fair game.

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It's complicated...

First, I recommend reading this reflective speech by John Williamson, who coined the term.

Second, I don't think some of the items in your list are portrayed accurately. Cutting social expenditures was never a tenet of the Washington Consensus, though it may have been a consequence of budget-balancing. And I'm not aware of any economist urging developing countries to move their economies towards dependence on natural resource exports.

Third, did Latin American countries experience disappointing growth because of these policy recommendations? That is, would they have done better by violating the consensus? I think the answer is no. The Washington Consensus didn't include measures to prevent Mexico's peso crisis, but it didn't instruct Mexico to implement any of the policies that exacerbated its troubles either.

As Williamson says:

The three big ideas here are macroeconomic discipline, a market economy, and openness to the world (at least in respect of trade and FDI). These are ideas that had long been regarded as orthodox so far as OECD countries are concerned, but there used to be a sort of global apartheid which claimed that developing countries came from a different universe which enabled them to benefit from (a) inflation (so as to reap the inflation tax and boost investment); (b) a leading role for the state in initiating industrialization; and (c) import substitution. The Washington Consensus said that this era of apartheid was over.

I am not aware of anyone advocating a return to inflation and ISI. Rather, the Washington Consensus was shown to be insufficient for growth.

As Dani Rodrik says (pdf):

What has become clearer to practitioners of the Washington Consensus over time is that the standard policy reforms did not produce lasting effects if the background institutional conditions were poor. Sound policies needed to be embedded in solid institutions. Moreover, there were significant complementarities across different areas of reform.

Rodrik may be right to say "Goodbye Washington Consensus, Hello Washington Confusion," but that doesn't mean that governments ought to run budget deficits, hike their tariffs, and nationalize industries.

Case for capitalism is pretty solid

In order to even begin to answer your question about the IMF, I would have to engage in a deep study of it. I barely know the first thing about it, and forgive me if I don't trust your account.

But here's a problem for you: your argument implies that without having deep knowledge of the IMF's activities, I can't possibly have any decent empirical basis on which to claim that capitalism (private property and free markets) is superior to the alternatives. But surely it is easy enough to compare North Korea to South Korea, China before and after the shift away from communism and towards capitalism, and so on and so forth. We are inundated with the evidence. The superiority of freedom to government intervention appears to hold even in the subtlest ways, as suggested by the studies that Coase mentions in his Reason interview, in which Coase points out that:

Reason: What's an example of bad regulation?

Coase: I can't remember one that's good. Regulation of transport, regulation of agriculture-- agriculture is a, zoning is z. You know, you go from a to z, they are all bad. There were so many studies, and the result was quite universal: The effects were bad.

So I would say that I have pretty good empirical reason for thinking that capitalism is good and government intervention is bad.

Your remarks imply otherwise. You say:

I guess i fail to see why this stuff hasn't just basically ended the economic argument for Libertarianism altogether. Actually, that's disingenuous, because i think I do understand but for a group as intellectually honest as ya'll, well I don't get it.

That statement only makes sense if the only decent evidence available pro or con libertarianism is the activities of the IMF that you allude to and their purported results.

Since I do not know about the IMF and its activities, I cannot answer you directly. However, whatever the IMF does, it does it in the same world that can be looked at directly, so it should be possible, nay, easy, to look at the world itself, and say, "well, this here makes things worse and that there makes things better" - it should be possible to conduct this economic survey of the world without knowing about whether the IMF is or is not involved with any particular thing.

Moreover, the IMF's activities form at most a tiny fraction of the total evidence. All the more reason for ignoring the IMF and just looking directly at the world and asking ourselves, which countries are rich, which are poor, what changed in countries that got better, what changed in countries that got worse?

And the evidence, as I've already pointed out, points strongly in favor of economic liberty.

Now, if you are right (which I have doubts about), then by some strange magic the relationship between the kind of economy and the wealth it produces which the world as a whole displays, is reversed in those areas that the IMF has touched. I offer up a couple of hypotheses for explaining this curious apparent reversal.

1) This reversal is real. For some reason which no one understands, the relationship between the kind of economy and wealth is reversed wherever the IMF has been.

2) This reversal is only apparent. Those who think they see it are making any of a vast number of possible mistakes.

The Mystery of Capital

I think the reasons for the failure of the Washington consensus are pretty clearly elucidated in De Soto's Mystery of Capital. Essentially, the best monetary and trade policies in the world don't matter when your society is in chaos or when the government regulates and confiscates the economy out of existence.

That being said, the IMF has attempted to do more than the Washington consensus entails, as evidenced by the list you provided. I don't know much about the IMF, but I suspect a few reasons for its failure (assuming it has failed, since I don't actually know).

1. The IMF is simply another large bureaucracy, and thus not accountable to a bottom line. This can lead to corruption (ahem, World Bank?) or just mismanagement of funds.
2. The IMF probably can't enforce the terms of their loans very well. If they lend some money to a developing nation and the nation returns to its older policies, what can they do, other than beg the U.S. to invade?

~Matt

Only the sick need a doctor

If a country is using the IMF it is by definition ailing economically, so I don't think the failure of the IMF is all the fault of neo-liberalism. If the alternative of state control and socialism had worked the countries would not have had to go begging to the IMF. Neo-liberalism was way oversold but just because it is not panacea does not mean it could not be beneficial in the right circumstances. Most failing states need the rule of law much more than they need the right fiscal policies.
The number of people killed by communism would well outweigh those killed by capitalism, even if you include the Vietnam war. The great leap forward killed 20 million people by itself.

brief intro

I'll respond to everyone's individual posts, but I thought I should say a few things first. I'm not sure if the first two posters realized this, but my list was taken straight from wikipedia and most of them seem accurate (as for the one or two posts taken issue with- I'll address those.) The IMF was a completely different institution from Bretton-Woods up until 1973 and including that period (the pre-neoliberal period) is not fruitful in a discussion such as this one (though it's quite interesting in its own right for people who understand Keynes and have looked at growth rates over the period.)

Noone has to answer this before i respond, but for the stream of thought (which I addressed already as reminiscent of some marxists) that says "well, great things would have happened but these countries are so backwards and trashed" maybe you should answer this: why don't you prefer a Cuban-style system of development for 3rd world countries then? I should make a note here that there's plenty to hate about Cuba, and I actually don't think it's a model society anyway, but it seems to me a vast improvement (especially when you consider that the repression isn't inherent in the system- Sweden does it without repression.) For those that don't know, Infant Mortality in Cuba is about the level of the US and all of this despite a crushing embargo. I mean, if we're acknowledging that free markets make things worse for underdeveloped societies (and you're right that's it's hard to draw any other conclusions) then why the Markets feed posters?
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Cuba/USSR

I'll believe the information from Cuba when Cuba opens up. We were already massively fooled about conditions in the USSR before it fell. Given that experience, I am reluctant to trust what everybody supposedly knows about conditions in Cuba. I'm sure you've seen the famous photos of the hospitals in Cuba. I've looked around in vain for "debunkings" of the photographs. Assuming these photographs are legit, I wouldn't wish that kind of medical care on my worst enemy.

The IMF is not libertarian

Okay I am a libertarian. I am opposed to governments meddling in the economy. I realize we could not magically strip our government from our current economy and expect stability, but how to extract government institutions from economies that rely on them is another argument for another day.

The point is. in my mind the ideal economy is one in which the government's (if there is one) job is restricted to courts, and defense.

It seems to me that the IMF was created by governments, and is paid into by governments. This large organization that consists of and represents governments then goes in and gives money to other governments in various ways and requires they meet certain criteria. Its like the U.N. of economic meddling.

So what if its goals appear to be free-market-esque? The way a government creates a free market is by getting out of the way of already existing markets which was the original goal of deregulation. You remove regulations that are restricting your people from making, selling, and trading.

But that isn't what generally happens when other countries and on occasion our country "deregulates" or "privatizes." Privatization usually ends up being the government selling off industries it ran to its favorite friends. Thus the new supposedly non-government entity is now run by some guy who got rich off of the previous government's corruption, and it still has a virtual monopoly. Deregulation usually ends up being the removal of some laws and replacing them with others that are just as restrictive and occasionally worse.

If you read the criticisms on the wikipedia page you will see that the IMF is very much a government entity. It advocates keynsian economic policies, and programs that raise taxes to support budget deficits.

The idea that this organization could be in any way libertarian is a joke. Regardless of the stated goals of this organization it is not a free-market organization, and what it does is loans government money to governments and then attempts to help manage that government's economy.

Where does this mysterious "free market" come in? It doesn't.

The IMF is just an extra level of government meddling. Of course they are going to muck things up. If anything this just shows that trying to impose your own variety of government-run economy onto another government-run economy ends up making a mess. This is the polar opposite of free markets, and the polar opposite of anything I advocate as a libertarian.

"free market reform" vs. free market reform

The list leaves out a big item, very high on the neoliberal priority list: "intellectual property" [sic] protections.

What neoliberals mean by "divestiture" or "privatization" is a long ways from what Rothbard meant by "desocializing" state property. What the neoliberals have in mind, Joe Stromberg referred to as "funny auctions": in other words, looting by politically connected financial elites. Such privatization usually entails taking state assets created at taxpayer expense, selling it at pennies on the dollar (often after spending billions of $$ more upgrading the assets before the global corporations will take them off the state's hands), followed by massive asset stripping to the tune of several times what the corporation paid for it.

I'm not sure what "[f]ocusing economic output on direct export and resource extraction" is supposed to mean, but I suspect it refers to monoculture economies geared mainly toward exporting raw materials and manufacturing for foreign consumption, instead of producing for a broadly based domestic market. If so, that is nothing but a continuation of the colonial and neocolonial patterns of economic development, which originally date to colonial mercantilist policies of suppressing native industry and subsistence production and subordinating the colonial economy to the needs of the plutocracy in the imperial center.

A real "free market reform" would entail, first of all, the total repudiation of all international copyright and patent agreements. Second, it would uphold the real property rights of peasant cultivators against quasi-feudal landed elites and latifundistas, and against the Western agribusiness interests they're in cahoots with. Third, it would privatize state assets by Rothbard's method, not Jeffrey Sachs': state services like utilities would be transformed into consumer co-ops owned by the ratepayers, and state industry would be homesteaded by the workers. Fourth, all subsidies to the profitability of Western capital would be eliminated: all utility and road infrastructure used by Western-owned industry would be funded entirely with user fees.

I'm guessing any government attempting such free market reforms would be classed as a terror state by the World Bank and IMF, in short order.

giant reply

Most people seems to be engaging in the "Trotsky response" in which we simply point to the flaws in individual cases so we can avoid recognizing the overall pattern; that of a constantly shifting set of assumption and analyses which basically function to cover the core proposition and protect it from critical thought. Constant- at the end- even manages a Stalin-style defense; the capitalist equivalent of "the US standard of living measure/photos are merely CIA propaganda designed to undermine to glories of the soviet state." I'm going to blog more about what this might mean but for now, onto the replies:

First, I recommend reading this reflective speech by John Williamson, who coined the term.

Sort of interesting, but really pretty lacking in content. Rather than take issue with any of Stiglitz's numerous cases, he simply broadly paints Stiglitz's analysis and then proceeds to subtly try and distinguish his position from that of Stiglitz's as if that functioned as a refututation. I'm glad i read it, but it seemed perhaps a bit short on actual discussion/evidence/analysis and perhaps too reliant on "if you hate my ideas then you hate apple pie." (that's practically a quote, btw.)

Second, I don't think some of the items in your list are portrayed accurately. Cutting social expenditures was never a tenet of the Washington Consensus, though it may have been a consequence of budget-balancing.

It wasn't my list, it was a wikipedia list but you'll have to remember that we're dealing with a few different things here (that aren't very different, but are to a degree), structural adjustment programs, the IMF conditions, World Bank fiscal austerity programs, and "the washington consensus" all differ in one or two things, but we needn't worry about them unless they are significant. Are you disputing that IMF programs since 1973 have often sought to reduce government spending?

Third, did Latin American countries experience disappointing growth because of these policy recommendations? That is, would they have done better by violating the consensus? I think the answer is no.

If you're forcing policies on a country and in practice restricting the ability of a people to make decision about their economic programs, then you'll have to do a little better "I think they weren't worse off." That kind of argument is a short-cut to ending the discussion. Unless you're prepared to discuss relevant cases and compare them to these programs (say Russia in the 90s experiencing 10 million or so extra deaths under Sachs) it's meaningless to make such assertions.

The three big ideas here are macroeconomic discipline, a market economy, and openness to the world (at least in respect of trade and FDI).

This kind of nails what i didn't like about the speech. Who's macroeconomic discipline? At what cost? What kind of market economy? How fast? "Openness to the world"? C'mon.

which claimed that developing countries came from a different universe which enabled them to benefit from (a) inflation (so as to reap the inflation tax and boost investment);

Maybe we can discuss this at a later date, but it's my understanding that inflation is loosely tied to growth when a country is developing (that's been the case historically for most developing countries.)

Thanks for thoughtful reply, though. Seriously.

Constant:

In order to even begin to answer your question about the IMF, I would have to engage in a deep study of it. I barely know the first thing about it, and forgive me if I don't trust your account.

fair enough, if I can recommend an outstanding article on it... You could do worse than William Finnegan's "The Economics of Empire" which is a tour de force.

But here's a problem for you: your argument implies that without having deep knowledge of the IMF's activities, I can't possibly have any decent empirical basis on which to claim that capitalism (private property and free markets) is superior to the alternatives.

That's not my argument. My argument is that as far as i can tell the IMF represent the ne plus ultra of Libertarian-style thinking being put into action time and time again. I'm curious to how when deals with this very serious counter-proof, that is to say the repeated failures (and disastrous failures fraught with massive death, at that.)

But surely it is easy enough to compare North Korea to South Korea, China before and after the shift away from communism and towards capitalism, and so on and so forth.

Surely it is, and if you think you've a great case study you'd like to share, please do so. To my knowledge, there is not a good one (South Korea for instance used capital controls and export restrictions in serious violation of free market orthodoxy.)

That statement only makes sense if the only decent evidence available pro or con libertarianism is the activities of the IMF that you allude to and their purported results.

I have asked repeatedly on this site and other for a good example of free market development (excluding a few city states) and have never gotten a good response. That's not a fault of catallarchy's- it's just that no good example exists! And side by side with the repeated examples of industrialization under protectionism (the US, Britain, Europe, Japan, any other developed country you can think of) you're left with a seriously bankrupt advocacy.

Matt Simpson:

Essentially, the best monetary and trade policies in the world don't matter when your society is in chaos or when the government regulates and confiscates the economy out of existence.

But the IMF policies include radical change sin government policies just like this one. We're not dealing with the fed and the fed only or something.

That being said, the IMF has attempted to do more than the Washington consensus entails, as evidenced by the list you provided. I don't know much about the IMF, but I suspect a few reasons for its failure (assuming it has failed, since I don't actually know).

There are minor differences.

1. The IMF is simply another large bureaucracy, and thus not accountable to a bottom line. This can lead to corruption (ahem, World Bank?) or just mismanagement of funds.

There is some of that, but it has nothing to do with what we're discussion. It's not like the IMF hasn't brought about these changes- that would be a different story altogether. In fact, the IMF is largely irrelevent to this discussion if you think about it, because it's only the mechanism of action. If you want to argue that these reforms weren't enacted (and good luck to you) then you can do so, but the reasons why the IMF might have had reasons not to carry out these reforms is not a good argument against the empirical fact that they did.

2. The IMF probably can't enforce the terms of their loans very well. If they lend some money to a developing nation and the nation returns to its older policies, what can they do, other than beg the U.S. to invade?

Again, see above.

sourcreamus:

If a country is using the IMF it is by definition ailing economically, so I don't think the failure of the IMF is all the fault of neo-liberalism.

If I was citing a study that said that IMF countries were poorer than non-IMF countries you might have a point. I'm not; I'm arguing that the IMF's policies fail to enact the *stated* goals and produce uniformly disastrous results, including the death of large numbers of poor.

The number of people killed by communism would well outweigh those killed by capitalism, even if you include the Vietnam war. The great leap forward killed 20 million people by itself.

If you're interested in arguing this, cite me a source and distinguish (as I tried to do) economic policy from political killings.

I'll believe the information from Cuba when Cuba opens up.
I doubt you'll find the *real* infant mortality statistics from 1996 sitting in Castro's basement. These statistics are independently estimated and I've seen no one seriously call them into question. It's not like I'm using Castro's IM stats.

I'm sure you've seen the famous photos of the hospitals in Cuba. I've looked around in vain for "debunkings" of the photographs. Assuming these photographs are legit, I wouldn't wish that kind of medical care on my worst enemy.

You're smarter than this Constant. We can settle an argument about the health standards of a given country by finding photos of a single hospital and judging the apparent lack of cleanliness? I was going to find some Walter Reed photos as a joke, but why bother. Have you ever been to the third world, btw? These hospitals actually look pretty good, and one could argue that Cuba's healthcare is actually MORE impressive in light of the fact that they can't afford better beds than that.

rainbough (not verified):

You're verified to me, rainbough. You're verified to me.

The point is. in my mind the ideal economy is one in which the government's (if there is one) job is restricted to courts, and defense.

Fair enough. I'd would LOVE to meet a Libertarian who says "my vision of the ideal society has NOTHING to do with the development models a country should use. Capitalism is disastrous for the poor during the early stages of development and it's with this in mind that we should allow developing countries the independence to choose protection/socialist models of development to ensure their people don't die while they undergo the processes of industrialization. One a society is late-stage industrialized, however, a Libertarian model becomes preferable." That is a perfectly consistent position, and has the benefit of not having be a total ostrich about the history of development and the current horrors of neoliberalismo. That is a 100% consistent position.

It seems to me that the IMF was created by governments, and is paid into by governments. This large organization that consists of and represents governments then goes in and gives money to other governments in various ways and requires they meet certain criteria. Its like the U.N. of economic meddling.

We agree, and the fact they they advocate policies (nee insist on/force policies) that seem so familiar to our Libertarian political discussions out to be pause for thought. Do "our" positions really line up so closely with what governments and international bankers want? Why is that?

But that isn't what generally happens when other countries and on occasion our country "deregulates" or "privatizes." Privatization usually ends up being the government selling off industries it ran to its favorite friends. Thus the new supposedly non-government entity is now run by some guy who got rich off of the previous government's corruption, and it still has a virtual monopoly.

First of all, that's the story everywhere. Have a look at the history of computers, the internet, pharmaceuticals, you name it. Really existing economics is all like this. So shouldn't we then oppose what's called "privatization"? You seem awfully close to saying we should, because whatever you think of public funding, these currently existing technologies should be owned by the people who created them- the public. If this is the case, then we basically agree on this point. Remember my case here is with Libertarian political advocacy (the mantra of 3rd and 1st world privatisation and deregulation.)

If you read the criticisms on the wikipedia page you will see that the IMF is very much a government entity. It advocates keynsian economic policies, and programs that raise taxes to support budget deficits.

Again, see my post earlier about the history of the IMF. It was arguably neo-Keynesian pre-1973, but it's no useful for our current discussion.

The idea that this organization could be in any way libertarian is a joke. Regardless of the stated goals of this organization it is not a free-market organization, and what it does is loans government money to governments and then attempts to help manage that government's economy.

Whatever the organization itself is is not important here, as I mention above in an earlier response. Libertarians advocate these positions all of the time (in fact, that's nearly all the advocating many of them do) as if stes toward the free market will produce the concurrent benefits that we believe the free market provides. If you're willing to divore your Libertarian theories from economic advocacy (which is basically the Stiglitz position) then we're half-way there.

Where does this mysterious "free market" come in?

I'm curious about this too.

The IMF is just an extra level of government meddling. Of course they are going to muck things up.

While this is true, their government meddling happens to fall almost exactly in line with what libertarians advocate for state policy. Is it government meddling to sell of state assets? Is it government meddling to deregulate the food industry? is it government meddling to reduce public welfare expenditures? If you're willing to commit to this very broad view of "government meddling" then I fail to see how a Libertarian can advocate anything at all on behalf of their ideology.

If anything this just shows that trying to impose your own variety of government-run economy onto another government-run economy ends up making a mess. This is the polar opposite of free markets, and the polar opposite of anything I advocate as a libertarian.

I don't want to be so presumptuous as to assume that you don't mean this, but if you do then bravo. Again, see my points about how broadly you're defining government intervention but this has been my point all along: economies are so inextricably tied with government distortions that there's no room for consistent advocay of Libertarian policies. Policy advocacy must be pragmatic (which means at times embracing things like socialism) perhaps only with the ultimate goal of dismantling the state structures in a fully industrialized society. In this case we have some mild disagreements about the ultimate society, but I'd expect you and I to largely agree on international and public policy (i.e. We should trade with Cuba because they have a right to do as they please, Venezuala too.)

Kevin Carson:

Long time no see Kevin.

The list leaves out a big item, very high on the neoliberal priority list: "intellectual property" [sic] protections.

I agree with you here, along with most of things you've written. Great analysis on how to handover state assets (though presumably we agree that we have no right forcing that on another country from the outside.)

As usual, our substantive disagreements basically lie on the realm of the "model societies" we're advocating. A Road system funded by user fees is not something I agree with- it seems impractical at best and repressive and backwards at worst. Mostly though, it just seems that generating the level of social solidarity in a society so it's perceived that you having a road to drive on is important enough to me (whether it's because I value what you produce, because you're willing to reciprocate, or simply because I care if the person across my town is able to feed their family) that I should contribute is preferable. I am curious though, do you think handing over state assets to the peasants who probably deserve them is the best and most just solution? If so, what about cases like the US in which we know who to hand the land back to, but i can' imagine anyone seriously advocating that as a policy. Insofar as we agree on the assumption here, the conclusion I draw from this is that we need redistributive tax policy in the short-term and a policy of allowing the profits from assets that public actually owes (like computer technology and many other things) to start funding major social welfare programs (which themselves will be cheaper because the cost, say, most drugs will only be simple cost-of-production.) Where do you stand on that?

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The Trees for the Forest

Polarized:
Most people seems to be engaging in the "Trotsky response" in which we simply point to the flaws in individual cases so we can avoid recognizing the overall pattern

But how do we know that the overall pattern exists, if the specific instances we consider aren't consistent with that pattern? Be specific: What are the best examples of the failures of economic liberalism? What are the best examples of the successes of the alternative model that you're promoting?

hey good questions

I'm not saying it's never the case that a good theory fails because of a variable that wasn't seen, but when it has no track record of success and repeated failures, those "Exceptions" appear more and more like simple justifications. The only rule governing this is Occam's razor- if I tell you that a demon will appear if you put a paper bag over your head, curse your mother, and spin around, will you do it? Perhaps, perhaps not- depends on how much you'd like to see a demon and how much you believe me. But suppose you do it and it doesn't work, but I simply say "oh, well that's simply because you only spun around once- you must spin twice." Maybe you even give it one more shot, but you can see that I can always rationalize the failure of the experiment ex post facto so you can never really be sure I'm wrong. Once you change some variable in the analogy to make it more fitting to the IMF situation- every time you spin many of your friends die, I'm basically forcing you to carry out the experiment, every time you spin I somehow get $100 dollars- the conclusion couldn't more obvious.

Asking me the best examples of the FAILURE of economic liberalism is an interesting way to go about things; backwards really. They have all been failures to one degree or another, more of them severe and with major consequences. If you want to discuss an example, a good one might be Russia since it was at least partially industrialized. As I don't think it's controversial at this point (even Sachs acknowledged it, if I remember correctly- he's an honest guy but it's hard to say "I killed 10 million people") but there were 10 million extra deaths in the decade of the 90s under the transition to capitalism, and Russia has sunk back to the 3rd world. It's gotten so bad that recent opinion polls show newly fond memories of Stalin for chrissakes. Anyway, we can discuss that if you like, but it's far more important for you to find a successful case. Even if every thing we've read about Russia was revealed to be post-Kremlin propoganda, that would hardly be an argument FOR liberal internationalism.

Lastly there are a few examples of an economic model I'm promoting but the simplest way to put it is "independence." In terms of political advocacy I don't think the US should intervene militarily or economically to prevent socialist movements from occurring (and that's been de rigeur.) More specifically, I think the model that every single developed country we know of has ever used to develop is probably a pretty good one. It's not uniform (again, the various differences in culture and resources and so on is nicely accounted for using the "independence" method) but it's always been protectionist. At the very least use capital controls and import restriction, but I think full-blown infant industry strategy is probably for the best. A good example of this? The US. An even better example though? England and India were side by side in the 1800s, with India more developed but England superior militarily. England forced India to "open themselves to the world" (reduce protection against English goods) by force, while England lavished subsidies on its steel and textile industries which slowly but surely crushed India's. I don't need to tell you how different India and England are today. The history generalizes.

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Let's get specific

You claim that "neoliberalism" has failed in one way or another more often then it has succeeded. Ok, here is what I take to be the conditions for economic growth according to neoliberalism:

Order
Clear and secure property rights
Low government corruption
Macroeconomic stability
fairly free trade
fairly low taxes
Less than burdensome regulations
A culture which is open to hard work
(Is there anything else that I am missing?)

Can you provide us with an example of a country which meets each of these requirements and yet still has terrible economic growth? Many countries have failed to make the transition (Russia), but I doubt any country has made a mess of things with all of these conditions met.

edit: wording

~Matt

Index of Economic Freedom

There are a few measures of economic freedom available, for example the Index of Economic Freedom. The individual freedoms that it defines are similar to the ones you have listed, with a few exceptions.

This index lists the following (copied and pasted, with corresponding entry from your list added in parentheses - I have picked the best match, though arguably other entries overlap as well). The item from your list that does not appear to be included here is the cultural item (the last one). [edit: it only just dawned on me that "order" is one of the items on the list rather than a statement that it is in order of importance. I think the "index" misses that one as well as the cultural one.]

  • Business freedom is the ability to create, operate, and close an enterprise quickly and easily. Burdensome, redundant regulatory rules are the most harmful barriers to business freedom. (Less than burdensome regulations)
  • Trade freedom is a composite measure of the absence of tariff and non-tariff barriers that affect imports and exports of goods and services. (fairly free trade)
  • Monetary freedom combines a measure of price stability with an assessment of price controls. Both inflation and price controls distort market activity. Price stability without microeconomic intervention is the ideal state for the free market. (Macroeconomic stability)
  • Freedom from government is defined to include all government expenditures—including consumption and transfers—and state-owned enterprises. Ideally, the state will provide only true public goods, with an absolute minimum of expenditure.
  • Fiscal freedom is a measure of the burden of government from the revenue side. It includes both the tax burden in terms of the top tax rate on income (individual and corporate separately) and the overall amount of tax revenue as portion of GDP. (fairly low taxes)
  • Property rights is an assessment of the ability of individuals to accumulate private property, secured by clear laws that are fully enforced by the state. (Clear and secure property rights)
  • Investment freedom is an assessment of the free flow of capital, especially foreign capital.
  • Financial freedom is a measure of banking security as well as independence from government control. State ownership of banks and other financial institutions such as insurer and capital markets is an inefficient burden, and political favoritism has no place in a free capital market.
  • Freedom from corruption is based on quantitative data that assess the perception of corruption in the business environment, including levels of governmental legal, judicial, and administrative corruption. (Low government corruption)
  • Labor freedom is a composite measure of the ability of workers and businesses to interact without restriction by the state.

Thank you, Constant

I should have thought of this. We now have an excellent way to resolve the debate, but I have a few comments.

I think freedom from government, financial, investment, and labor freedom all fall under the heading of (for lack of a better name) less than burdensome government regulations. After all, if the government regulates the movement of labor, what investments you can make, etc., wouldn't we call it burdensome? My list does seem to have a blind spot when it comes to government ownership of industries/businesses, etc., which the index addresses. "Low government intrusion into the economy" should probably be added to my list.

Order may not be explicit in the list you posted, but it is probably implicit every time "security" is mentioned. It might even be redundant in my list: is it possible to have secure property rights without having order?

Outside of culture, it seems we have an objective measure of the various qualities we are (or at least I am) claiming a country must have in order to be economically successful. If neoliberalism is a failure, there should be a bunch of countries which score relatively high on the index but still aren't doing as well as other countries in similar situations* with lower scores. I'll leave it to someone else to dig through the data, I have finals to prepare for this week.

*This clause is here because a country could build up wealth and then switch to bad policies and still have high standards of living until the wealth runs out (Europe).

~Matt

I advocate that our country

I advocate that our country deregulates certain industries, and privatizes certain things it does that I feel are beyond its purview and would be better done by non-government entites. However, if they for example deregulate an industry and then pass a set of bizarre regulations in their place, (such as the way california did with its energy markets) those new regulations are likely to create a whole slew of catastrophic effects that the public will then blame on "deregulation," rather than the new worse laws that will replace the old ones.

I advocate that organizations such as the United States Post office be turned into a private entity (we might call this privatization), and that the market for first class mail be opened up to other firms so that we can reap the benefit of a competitive marketplace. However if for example we merely sold the post office to lets say Halliburton, and did not open up the market and instead gave one company an effective monopoly, then I have no doubt we will end up with an abymal failure and something likely worse than what we have now.

However saying that in those cases the "free market failed," "capitalism is not good for this country," or "deregulation is bad" when clearly deregulation was undercut by new regulations, and the goal of ending a government monopoly by allowing competition was undercut by forming a different kind of monopoly is incredibly misleading.

What was called "privatization" in Russia is not something I advocate. What was called "deregulation" in California is not something I advocate. It does matter how you privatize and how you deregulate. To get the benefits of a free market by privatizing there has to be a relatively free market place. All the deregulation in the world will be a failure if it is replaced by other regulations.

The reason I said the IMF is the "polar opposite of anything I advocate as a libertarian" is because it does not (and cannot) act on itself. I advocate the U.S. government removes its own subsidies. Thats it. I do not advocate that it removes anyone elses or participates in any organization that loans money to countries to get them to remove their subsidies. The same applies for tariffs, deregulation, and privatization.

If we get other countries to remove their subsidies and we do not we will be hurting poor countires. I would like for other countries to follow suit but we should lead by example, and that is as far as our government should go in my opinion. It should only act on itself. The IMF is an organization made up of governments. It cannot deregulate itself. Its whole function is being a government entity that interacts economically with other government entities.

I am confused why as a libertarian you think that I should want that kind of government organization to exist.

On a side note we should defintely trade with cuba and venezuela. Though if I were running a company I wouldn't want to actually set up valuable property inside their borders given the high probability of nationalization.

here it goes, here it goes, here it goes again...

You claim that "neoliberalism" has failed in one way or another more often then it has succeeded. Ok, here is what I take to be the conditions for economic growth according to neoliberalism:

Failure isn't nearly strong enough a word. Did marxism fail? Or did just create atrocious conditions and result in massive deaths?

Can you provide us with an example of a country which meets each of these requirements and yet still has terrible economic growth? Many countries have failed to make the transition (Russia), but I doubt any country has made a mess of things with all of these conditions met.

I feel like I'm talking to a marxist. Oh you don't think marixsm works?

Well can you name a country that has followed all the steps from "dictatorship to the proletariat" to no private property to the "withering away of the state" (with 7 other caveat that we can cull from Engels)? Of course you can't. I mean, this isn't about "let me find a list that I like and if you can't find a country that's tried all of this then I'm right." YOU'RE the one who needs reasons to advocate this stuff. Again, I don't wanna go off on a rant, but go read my Occam's razor post above.

There are a few measures of economic freedom available, for example the Index of Economic Freedom. The individual freedoms that it defines are similar to the ones you have listed, with a few exceptions.

I don't understand what you're getting at here- why just cite another list? In case it isn't obvious, a question about the IMF is a question about conditions for development- not about the state of the political economy in a country that is now developed. I don't doubt that the US will be more economically open that 3rd world countries now that it's developed (though I've found such studies of "openness" to be specious indeed) because, as I've said all along, once I country protects it's industry to the point where it's big and strong, it loves nothing more than weilding "free trade" dogmatisms like clubs.


I should have thought of this. We now have an excellent way to resolve the debate, but I have a few comments.

Huh? All he did was post his own irrelevant link... what could that have to do with solving our debate?

If neoliberalism is a failure, there should be a bunch of countries which score relatively high on the index but still aren't doing as well as other countries in similar situations* with lower scores.

not at all- this misunderstands my point crucially. This is a point about development models and historical cases. You're also facing a strong case of selection bias- as any economic historian worth his salt knows, countries tend only to submit to free trade when they know they can win... therefore it wouldn't be surprising at all to find cases in which the most efficient economies are the most free. What you'd need to do though is look at the history of those economies..

This clause is here because a country could build up wealth and then switch to bad policies and still have high standards of living until the wealth runs out (Europe).

Look it's important to consider these things. You're wrong here, but this is exactly the kind of thing that must be considered.

I advocate that our country deregulates certain industries, and privatizes certain things it does that I feel are beyond its purview and would be better done by non-government entites.

I disagree strongly with this stuff, but for the most part it's a separate question. We should, as a country, have a right to autonomous economic policies. Nevertheless, the fact that deregulation is basically always an unmitigated disaster is a related argument (probably big enough for another thread though, unless you want only to restrict it to developing nations.)

However saying that in those cases the "free market failed," "capitalism is not good for this country," or "deregulation is bad" when clearly deregulation was undercut by new regulations, and the goal of ending a government monopoly by allowing competition was undercut by forming a different kind of monopoly is incredibly misleading.

Right, there's always a nice plump excuse waiting for us isn't there? Marxists need only remember that Stalin was only reacting to CIA oppression, and free marketeers need only remember for all the history of "our" policies resulting in the deaths of millions we can always find someway that the country didn't live up to our standards 100%, or that some other law passed that we didn't like. What historical case(s) are embracing of neoliberal policies based on?

To get the benefits of a free market by privatizing there has to be a relatively free market place. All the deregulation in the world will be a failure if it is replaced by other regulations.

I think we're coming around to agreeing a bit, as we started to before. This means, in practice, that discussing a policy like adding the minimum wage or cutting welfare benefits can't be opposed on these economic grounds we're discussing. Welfare benefits being cut, after all, is just another regulation that'll be replaced. Assuming you agree that we need only consider the effects on children (for instance) for welfare and not the principle (which is to say, we should probably embrace it) then we're in full agreement.

I do not advocate that it removes anyone elses or participates in any organization that loans money to countries to get them to remove their subsidies. The same applies for tariffs, deregulation, and privatization.

Well that's good. We're still faced with the problem that we have no historical case on which to base the advpcacy of these policies, and we have a LOT that show horrible results.

I am confused why as a libertarian you think that I should want that kind of government organization to exist.

The IMF operates largely at the behest of banks, and I assure you that so long as corporations exist, operation like the IMF will exist. More than that though, the IMF provides a fantastic selection of historical cases in which developing countries have been forced to try out free market reforms, which neoclassical economists often at the helm.

I'm not a Lib, btw, if I wasn't clear on that.

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Dodging the question

This is a point about development models and historical cases. You're also facing a strong case of selection bias- as any economic historian worth his salt knows, countries tend only to submit to free trade when they know they can win... therefore it wouldn't be surprising at all to find cases in which the most efficient economies are the most free. What you'd need to do though is look at the history of those economies..

Then do it. This is, after all, fundamental to your argument. Your not going to get anywhere simply asserting its truth. Brandon said it best in a short comment further up the stream:

But how do we know that the overall pattern exists, if the specific instances we consider aren't consistent with that pattern? Be specific: What are the best examples of the failures of economic liberalism? What are the best examples of the successes of the alternative model that you're promoting?

I patiently await some evidence, which was the purpose of giving you the list and the link to the index. Use them if you wish. In the mean time, I think I have a calculus final to study for.

~Matt

lost in the LOS

Then do it. This is, after all, fundamental to your argument. Your not going to get anywhere simply asserting its truth. Brandon said it best in a short comment further up the stream:

What is? That now-free economies are successful? I don't see who that's crucial to my argument. I responded to Brandon further up the stream, btw. I'll try again.

But how do we know that the overall pattern exists, if the specific instances we consider aren't consistent with that pattern? Be specific: What are the best examples of the failures of economic liberalism? What are the best examples of the successes of the alternative model that you're promoting?

First off, I already gave a few examples. The US is a pretty good one, Britain vs. India makes for a riveting side-by-side comparison, but again my "argument" was in large part a question about neoliberalism. I think I've made plenty of points about Occam's razor that haven't been dealt with either.

I patiently await some evidence, which was the purpose of giving you the list and the link to the index. Use them if you wish. In the mean time, I think I have a calculus final to study for.

I don't know what you're asking for. You want evidence from me? I'm not even sure about what. All I saw was a Constant post that featured a giant list of qualities. While it seemed fairly subjective for a study anyway, I correctly pointed out that my argument was largely about development, whereas this is about the current states of economies (meaning, it would only be useful if we could predict future economic performance)

I honestly fail to see who any kind of "study" could in any way tease out the factors of development in an unbiased why. World economic affairs are far to complicated for one, and for another we're really only dealing with about 2 handfuls of countries that HAVE developed. Is a study useful for that? Isn't it easier and more frtuiful to look at each country in a detailed manner?

aaaathatsfiveas.blogspot.com

Matt, Arnold Kling had a

Matt,

Arnold Kling had a good article in TCS a few ago addressing the question you raised in your post. Some choice excerpts:

What are the things that can be done that cause prosperity? Prosperity depends on growth, so economists want to understand how to improve the performance of low-growth countries. However, our knowledge is frustratingly incomplete. Certainly, there is no simple, one-dimensional answer.

There is a counter-example to every generalization and an exception to every simple rule. Are a stable currency and an influx of foreign capital the answer? Don't tell that to Argentina, which collapsed after a decade of a "hard peg" to the dollar and large capital inflows. Is privatization a panacea? Don't tell that to Russia and the other republics of the former Soviet Union. Is a high propensity to save a source of economic strength? Not if you look at Japan's lost decade. Is democracy necessary? Not if China's recent success is any guide. Are trade barriers the major impediment to progress? Not if you go by the relatively high growth rate in India, where tariffs are among the highest in the world.

In spite of these counter-examples, a country that wants to improve economic performance should stabilize its currency, encourage foreign capital, privatize government enterprises, aim for a high rate of national saving, adopt democratic institutions, and reduce tariffs. The counter-examples merely illustrate that none of these policies, individually, is decisive.

There are two reasons that economists are unable to develop a fool-proof program for economic growth. The first issue is that growth is a nonlinear feedback process. The second issue is that economic policies themselves are only one ingredient in the recipe for growth.

[huge snip]

Although the standard economic prescription calls for privatization, in many prosperous countries governments are involved in a number of industries. In the United States, for example, government is significantly involved in agriculture, education, telecommunications, banking, transportation, and housing. For a developing country, it must be challenging to assess which of these various interventions should be imitated, which ones are counterproductive, and which ones are irrelevant.

The wide array of policy choices can be particularly challenging when combined with the problem of nonlinear feedback. A country may fail to see positive results from good policies, because other policies are not well chosen.

[huge snip]

Even if prosperity can be achieved only if a country develops a work ethic, a public service ethic, and a learning ethic, that only begs the question: how are those ethics fostered?

Standard economic prescriptions, such as letting the incentives of free markets operate, are only part of the answer. Free markets are particularly helpful in maintaining a work ethic. However, without a public service ethic, governments will undermine property rights rather than protect them. Without a learning ethic, agriculture, manufacturing, and services will stagnate rather than evolve.

Should we be surprised that the so-called "Washington Consensus" or "neoliberal" recommendations for deregulation, financial liberalization, and privatization have not brought rapid prosperity to countries that lack some of the necessary ethics? On the contrary, in retrospect we should be surprised that anyone had high expectations for success under such circumstances.

However, even though "neoliberal" policies have not always received high-scoring feedback in the game of cracking the code of prosperity, that does not mean that they are bad guesses. As Brad DeLong somewhat forlornly put it, "The hope is that privatization and world economic integration will in the long run help create the rest of the preconditions for successful development. But we are playing this card not because we think it is a winner, but because it is the last one in our hand."

Now, Kling doesn't specifically address the revisionist Marxist critique you make, but I think his overall argument does apply. We libertarians certainly have evidence that capitalist societies (despite the many anti-market impurities of actually existing capitalist societies today) are sustainable and desirable places to live; in fact, the best places on earth to live. This is certainly more evidence than Soviet-style statist-socialists could ever claim to have had. It doesn't seem like you are disputing this fact; i.e. the fact that capitalism seems to work well for first world, developed, mostly western countries. What you do seem to be disputing is that capitalism can be a successful means of transition from undeveloped to developed. What I think Kling's article gives us is the notion that no one really knows the exact set of preconditions necessary for successful development, and that even when we try to guess blindly toward what economic theory indicates, we are still left with the problem of trying to implement difficult preconditions such as changing cultural ethos. This is not a mark against libertarianism any more than it is a mark against welfare-statism. It just represents the difficult problem economists must deal with when trying to tease out the right mix of economic policies, the right order and method in which to implement them, and the pesky problem of determining which elements of a cultural ethos are a precondition for successful economic growth, and how to actually change a preexisting cultural ethos into a more beneficial direction.

Apart from the infant industry argument, it's unclear to me whether you are presenting any additional economic theory arguments against neoliberalism/the Washington Consensus. For the record, in case anyone reading is unfamiliar with the term, the infant industry argument essentially states that developing countries should exercise extreme protectionism in the form of trade barriers and capital controls, as well as state-subsidized and/or entirely state-run industries, and only when these industries have "grown up", so to speak, should the protectionist barriers be lifted. Of course, the infant industry argument raises the familiar and widely-shared objections that there is no reason to assume government planners are wise enough to know which industry their nation has a comparative advantage in and should therefore choose to subsidize, nor is there any reason to assume government planners are wise enough to know at what point such an industry has ceased being an infant and is ready to be an adult, nor is there any reason to assume that the entrenched interests created by previous protection will give way once the benevolent, omniscient planners decide its time to tear down the wall.

Good points

I think it is fair to say that we (libertarians or economists) think we know what the sufficient conditions are for economic growth. Basically, a high score on every category in the index plus all of those cultural norms which are left out, e.g., a strong work ethic, private property ethic, etc. However, few (if any) countries meet ALL of these conditions. A quick glance over at the index shows us that only one country, Hong Kong, has a score of 80 or above in every measured category for 2007. (A score of 80+ is required to be in the "free" category. The next category is "mostly free"). Since fixing everything really isn't feasible, a developing country has to try to focus on the areas which are most important for economic growth. As Kling's essay points out, no one really knows what the "important" factors are. If you check the time series data on Bolivia and China from the index, you will see that they have comparable scores in just about every category across time, but China, of course, has outpaced Bolivia by leaps and bounds in terms of economic growth.

It seems that the important factors vary according to the nature of the country. The U.S., for example, was fairly large early in its development. Protectionism didn't hurt the country much because it was essentially a free trade zone the size of Europe. For a tiny country such as Bolivia, protectionism is going to be far more troublesome (at least if this whole division of labor business is correct).

The hardest problem seems to be cultural norms. How do you completely change a culture's norms? Send over an army of philosophers?

~Matt

thanks for the thoughtful reply

Thanks for the thoughtful response. A few points interspersed as usual:

What are the things that can be done that cause prosperity? Prosperity depends on growth, so economists want to understand how to improve the performance of low-growth countries. However, our knowledge is frustratingly incomplete.

Absolutely true, and this is why some of the sharper guys like Stiglitz and Krugman advocate a very non-interventionist independent path of development. The IMF rules and (to be perfectly frank) the gospel of free markets are very much about increasing the spoils for the richest (which is roughly what you'd expect for a dogma that's preached so loudly by the powerful.) It's disingenuous to paint it as if these state and corporate representatives are trying their best with incomplete knowledge but just slipping and falling. It's like "Whoops, infant mortality rates tripled and so did the profits of the corporations we're associated with! What a silly mistake to have made for the 100th time." It's not just that they aren't changing the policies very much, or even that they have the same predictable consequences for the populations, or even that the beneficiaries seem to magically be the same bloc of international corporations who (hey how bout that) support these groups. It's that they do it time and time again and people buy this line of "whoops we had no idea even though we said we did, we're so sorry" ad infinitum.

Suppose your model was "international free market advocacy is primarily about ensuring profits for large multinationals rather than aiding the poor." It's amazing how well the evidence stacks up on that side rather than the side of "free market advocacy is about benefitting the poor, and the only reason it hasn't worked is because of peculiar cultural factors in each of the cases. That profits always seem to increase markedly during these "failures" is merely a happy coincidence."

Are trade barriers the major impediment to progress? Not if you go by the relatively high growth rate in India, where tariffs are among the highest in the world.

Yes, obviously. And yet every non-leftist I know continues to blindly assume that the model of Liberal internationalism has a track record, and is best for a given country regardless of what they think they want.

In spite of these counter-examples, a country that wants to improve economic performance should stabilize its currency, encourage foreign capital, privatize government enterprises, aim for a high rate of national saving, adopt democratic institutions, and reduce tariffs.

This is the point where some evidence would be nice. If we know anything, it's the countries that developed ALWAYS flaunted this sort of advice heavily and NOT A SINGLE country has ever followed all of it.

Is there an exception to every rule? I suppose. Try this one though "Every country which has developed has done so by radically violating the washington consensus rules (free trade policies.)" Hard to find an exception. It almost makes you wonder why that isn't the rule...

Even if prosperity can be achieved only if a country develops a work ethic, a public service ethic, and a learning ethic, that only begs the question: how are those ethics fostered?

Back to marxist arguing about how Russia wasn't properly socialized for communism. Nevermind that Lenin was light years more intellectually honest in this regard than these guys (he at least acknowlged beforehand that Russia couldn't be really communist) since they certainly aren't saying this right before they march into a country a proceed to give the orders that kill thousands (for this country this time, they're sure they've got it down to a science.) How do we foster a "learning ethic"? Well probably by slashing funding for schools, I guess. A work ethic? By prying open markets to foreign corporations and selling off the country's assets, ensuring that the work incentives will go to foreign countries. Public service? Probably by driving out of people's heads there even is such a thing as "society" or "public service" and convincing them instead that there are no such thing as human rights aside from what can be won on the labor market.

Should we be surprised that the so-called "Washington Consensus" or "neoliberal" recommendations for deregulation, financial liberalization, and privatization have not brought rapid prosperity to countries that lack some of the necessary ethics? On the contrary, in retrospect we should be surprised that anyone had high expectations for success under such circumstances.

Should we be surprised that it magically increased profits every time though? I guess so. This is the thief who's friend distracts you with a game while his friend steals your wallet and then punches you. Worse though, because we've seen it done dozens of times to defenseless people and while they've all wised up (ask a Salvadoran what they think of neoliberalismo) we continue sympathize and excuse them "oh they just wanted to show the guy a trick that would change their life for the better." Let's see 'em try it on that 89 pound guy over there- he looks like he could take a punch in the... I mean benefit from the wonderful effects that we're sure will happen this time.

But we are playing this card not because we think it is a winner, but because it is the last one in our hand.

The last refuge of a scoundrel (i.e. Brad DeLong): "there is no alternative." Yeah, certainly not the only card that's ever won a hand.

Now, Kling doesn't specifically address the revisionist Marxist critique you make, but I think his overall argument does apply.

That's probably because he's making the ne plus ultra of the revisionist marxist's argument.

I've probably said enough, so I'll keep the rest short:

It doesn't seem like you are disputing this fact; i.e. the fact that capitalism seems to work well for first world, developed, mostly western countries.

I do dispute that fact, but am not interested in doing so here. I just don't think a term like "capitalism" is applicable to the western world without heavy qualification.

What I think Kling's article gives us is the notion that no one really knows the exact set of preconditions necessary for successful development, and that even when we try to guess blindly toward what economic theory indicates,

Two points: one, we shouldn't be the ones doing the guessing. We are forcing these programs down people's throats. Two, while nobody knows the preconditions exactly it so happens that the one strain running through all of the successful examples we've ever seen is exactly the thing we're rejecting.

Apart from the infant industry argument, it's unclear to me whether you are presenting any additional economic theory arguments against neoliberalism/the Washington Consensus.

There are plenty, but when I make them (as I have on catallarchy before- I'll link if you like) people are apt to go back to the historical claims.

Of course, the infant industry argument raises the familiar and widely-shared objections that there is no reason to assume government planners are wise enough to know which industry their nation has a comparative advantage in and should therefore choose to subsidize,

I'm not sure I'm crazy about the infant industry "argument" per se, and am not really so much of an ardent protectionist. However, I'm arguing that protectionism has a track record and free markets don't. I'm also arguing that whatever theoretical shortcomings we might see in the "infant industry" argument, it's important to remember the wise words of the guy above: "our knowledge is frustratingly incomplete." The simplest way to do things is to let countries do their own things (and I can assure you, they will always choose protectionism if free to do so- if history tells us anything, it's that) and if they work despite our dear theories (as they have, repeatedly) it's either time to plead ignorance (i.e. "we don't know enough about this stuff let's shut up), scrap our dear theories... or both.

Matt
aaaathatsfiveas.blogspot.com