Don’t have a dog in this fight, just want the StraightDope on this. Here’s how the conspiracy goes based on a few videos I’ve seen on Netflix: the International Monetary Fund will conditionally agree to help struggling countries *only if *they agree to certain economic, financial, or governmental policy changes. The IMF, as the conspiracy goes, will enact a trifecta of conditions that always include reduced government spending, tax increases, and privatization of government enterprises. The reason why these reforms are included is because the IMF wants corporatize government enterprises. While these reforms will lead to real increases in GDP and enrich a very few at the top, the vast majority of people in the country will be poor or poorer.
I think that’s the conspiracy, more or less. Is there any truth to it?
The reason I ask is because a lot of what was being said about IMF and Argentina and the subsequent economic collapse seems eerily similar to what’s currently being played out with Greece and the IMF.
It’s not at all a secret or a conspiracy that the IMF required loan recipients to institute sweeping reforms based on neo-liberal economic theory. The required “poverty reduction plans” were based the principals of privatization, trade reform and shrinking of the government.
Was this a corporate conspiracy? Not really. It was more ideological than practical. Neo-liberal economic thought was in vogue at the time, and certain institutions took it as sort of an economic theory of everything. The timing of the debt crisis was just right to give them a massive inroad to try out their experiment.
The whole thing had a lot of unintended consequences. Health and education, both important to long term economic health, took a nose dive with this ideology, as governments needed to cut very fundamental services to comply with their loans. This spawned a proliferation of foreign and local NGOs trying to fill these gaps, and now what we have is an enormously decentralized patchwork system doing a lot of what would traditionally be a government’s role. This causes all kinds of havoc, at these organizations take the strongest talent in the country, leaving the government staffed with the less talented and more corrupt. It’s become very hard to build government capacity to bring their country to prosperity, and the health and education setbacks of this era continue to hold back the affected economies.
Anyway, the required economic reforms did benefit foreign powers in numerous ways. Free trade generally works out more in our favor than the other guy’s, privatized sectors often end up managed by foreign organizations (did you know Cameroon’s electric system is managed by an American company?), and even NGOs and aid work makes for a lot of cushy expat jobs. But that wasn’t really the primary motivation.
In any case, the IMF has taken some responsibility for their failures (and poverty reduction plans did not prove particularly effective), and has taken a more balanced approach as of late.
Has this privatization approach worked? Are there any IMF success stories? Also, why did Argentina, Venezuela, and other South American countries eject and nationalize the private companies owning oil and gas? It seems to me that after these countries nationalized these industries, real poverty began to lift. Why, if you say the IMF is taking a more balanced approach as of late, do they require Greece to privatize their public utilities and airports? Since privatization would inevitably lead to an increase in the prices of utilities, wouldn’t that lead to individuals being squeezed out of the market (for utilities)?
Here is a good overview of privatization experiences including some IMF experiences. http://therandymon.com/papers/privatization.pdf PDF
What it says is that privatization is usually succesfull under certain constraints. What you have to realize is that the IMF bailing a country out is like entering into bankruptcy. Generally if a country is well governed and has a good economy the IMF never gets involved so the countries receiving bailouts are in poor shape economically and have poor governments. The IMF wants the government to get in better fiscal shape so they can pay back the money and get back into the regular credit markets. Thus the government has to raise revenue, cut expenses, and sell off assets. Privatization cuts expenses and raises revenue in the short term. If done right it can also lower prices and lead to more growth, if done wrong it can raise prices and lead to less growth. Since alot of these governments could mess up a two car funeral, it is easy to see why privatizations don’t always work out.
Are you sure real poverty’s getting better in Argentina and Venezuela? Argentina is a perpetual economic basket case.
The reason countries nationalize such things is pretty obvious; it’s popular, and provides the regime with an infusion of cash. It is worth nothing that the world’s REALLY wealthy countries, countries where absolute poverty is the least common, generally don’t nationalize such things. There must be a reason for that.
This cannot be emphasized enough. Many critics ofthe IMF - including professional money men and high-minded theorists, miss two salient facts about the IMF.
(1) If the countries involved had other options, they wouldn’t be going hand-in-hat to the IMF.
(2) the IMF is not a perpetual charity service. It’s aim is the get the country into something resembling working condition.
I am not a Keynesian, but whether the IMF people hypothetically agree or hypothetically disagree, they are not going to indefinitely fund an arbitrary budget deficit regardless of how “nice” it might be. Their goal is to get the basic problem fixed so that the nation can (hypothetically) function after a fashion. Most such nations have deep-seated issues of corruption, insane and blatantly dangerous policies, and broken cultures which actively hinder foreign investment. The IMF does what it can but it does not have a magic wand.
Most critics of the IMF also seem to hold strange views about 3rd world debt, but that’s neither here nor there.
Do you think this applies to 1997 Asian Crisis? South Korea and Thailand already had solid policies and insane amounts of foreign investments.
I think the problem was that IMF did what they planned to do regardless of if it’s going to work or not. You might think they were incompetent but that’s just a euphemism for “IMF should have done THIS but they did THAT” therefore, incompetent. All the while their goals were not saving the country but saving foreign investments (feels weird to pint that out).
You mean the reconstruction after WW2? If so, anything new since then?
Yes, but what’s that reason? There’s a nationalized oil company in China pulls nearly $400 billion profit a year compared to say Marathon Oil (American Company) which pulls in about $15 billion a year. What I don’t understand is that if nationalization of industries allows these eye-popping profits to flow directly into the government’s coffers, what pray tell are the long-term benefits of privatization that are supposed to outweigh that? Emphasis on the long-term. There’s a governor in Pennsylvania that wants to privatize their liquor industry for $1 billion. But the PA liquor control board generated nearly $500 million in revenue in last year :eek:. Why is God’s name is privatization even be considered?
IMO, There should be an embrace of “mixed economies” where both public and private companies are allowed to co-exist.
I said “most”, son. There’s exceptions to every damn thing under the sky.
You have totally made such amazing arguments and provided so much data and evidence that I am compelled to agree with you totally. I’m especially amazed at your ability to sum up complex national finances and economic movements in simplistic emotional terms that a six-year old could understand.
Yes, but what’s that reason? There’s a nationalized oil company in China pulls nearly $400 billion profit a year compared to say Marathon Oil (American Company) which pulls in about $15 billion a year. What I don’t understand is that if nationalization of industries allows these eye-popping profits to flow directly into the government’s coffers, what pray tell are the long-term benefits of privatization that are supposed to outweigh that? Emphasis on the long-term. There’s a governor in Pennsylvania that wants to privatize their liquor industry for $1 billion. But the PA liquor control board generated nearly $500 million in revenue in last year :eek:. Why is God’s name is privatization even be considered?
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You’re all over the map here and I have no idea what your actual point is.
First off, public companies don’t usually turn profits. You confuse revenue with profit; it’s pretty common for these to exist for odd historical reasons or simply because it expands the power of the ruling groups, not their pocketbooks. Big public companies can be used to dispense patronage, control critical materials or resources, and make the state feel more secure. They usually have old and outdated rules, combine incredible inefficiency with agonizing bureaucracy, and
In fact, public copanies that do turn profits tend to be in the alchohol or oil sectors, and the latter often only make money in especially good years. CHina’s petrochemical industry has some huge question marks behind it and probably loses massive amounts every year, most of which is kept off the books. And they do this because the state can pay - for now - and because it’s a political action designed to appease certain influential groups.
Holy bejeezus! Nobody ever thought of that before!
As far as I know there’s no country in the world where public companies cannot exist, although there may be some where they don’t.
India had an IMF SAP in the early 90’s , dismantled much of its licensing system, opened the economy to trade and has benefitted from significantly higher growth rates in the 20 years after that as well as steady reductions in poverty.
While I don’t think China has had a formal SAP with the IMF, it has received loans and advice from various financial institutions like the World Bank ,ADB and IMF and has generally moved in the direction of opening up its economy and becoming more market-oriented. It has lifted more people out of poverty faster than any country ever.
I don’t live in PA but apparently the State Liquor Control Board owns the State Liqour stores. These stores generated nearly $500 million last year but the Governor wants to sell the whole thing for $1 billion. So, I think it’s privitazation not deregulation but someone who lives in PA and/or more familiar with the situation may be able to add more insight.
Despite this being a major focus of your posts, you…
(A) Have no idea what you’re talking about…
(B) Didn’t bother to take five minutes to find out…
(C) Are so far off on your numbers I laughed out loud, and…
(D) Apparently still don’t understand the difference between revenue and profit. And seem to be making both up in your head.
Which pretty much marks this as an Epic Fail. With a ten seconds of searching I navigated my way right over to. (Finding the page took 4 seconds. It took me another 6 to locate the fiscal reports).
The “excess” profit deposited into state coffers in about $100 million a year, although last year was only 80. Now, don’t mistake me - that’s a lot of money. But the lion’s share of the money the state gets comes not from the corporate profits, but from the sales and liquor taxes. Nothing else the SLCB does has any impact on that the state of PA would not get otherwise. (There’s some complexity because the SCLB may get some freebies from the state and has acess to state services which may or may not be correctly costed; it doesn’t like like it would be a +/- 10% swing on that “bonus” paid to the state.
Hence there’s some issues involved with this “public corporation”. First, it may be hindering overall alchohol sales if it isn’t doing is work effectively. It may not be as licensing as widely as it should. It may have inefficient operations which could increase the market or decrease costs (which, if it were private, could be taxed). It currently has no competition. It’s also involved with a rather broad segment fo the market, both running its own stores and distribution and engaging in enforcement; that can work and sometimes does, but even a first-year business school student would raise its eyebrow and bring up the phrase, “Core Competencies.”
If the state thinks they can sell it for a $100 bill, that could be a very good deal. You get the funds for the next decade, a pretty good chance of increasing your revenues more than you lost, and get to move significant pension obligations off your books. Reasonable people can disagree. But they need to disagree because they’ve read the basic financial implications, not because they like imaginary numbers.
China most certainly did not have an SAP with the IMF.
China, and all of the Asian boom economies, told the IMF to screw right off. Their model is nearly the opposite of the IMF recommendations: A major role for state owned enterprises, heavy government control of the markets, and protection for favored industries.
To give another example, the IMF encouraged Malawi to dismantle their agricultural subsidies. The country rather quickly plunged into a food crises and threatened famine. Eventually they decided to do things their own way, began subsidizing high yield fertilizer, and ever since then they have become a next exporter, producing more food than they can use.
Now, the IMF isn’t always wrong. Many of their reforms make a lot of sense. But every country is very different, and reforms need to include some allowance for well being. A country can have a lot of starving people and still have a “good” economy, but we’ve learned that dismantling social systems does more harm that good both in terms of welfare and economics.
State owned enterprises aren't the engine of China's growth though and have been around for 60 years. What has created the growth in the last 30 years has been private sector manufacturing companies in coastal areas and foreign investment which is straight out of the Washington Consensus playbook. Several of the East Asian countries went to the IMF after the 97 crisis and while its role was criticized most of them in fact recovered quite quickly.
It takes a lot of wistful thinking to try to claim China’s economic growth as somehow related to the Washington Consensus. State owned enterprises make 35% of China’s economic activity. And China’s government has no problem deciding, for example, that come hell or high water China is going to be the leader in green technology. Whatever role this all plays economically (and clearly it can’t be too bad, given China’s growth) I’m sure the IMF would not approve. The point is not that SOEs are good, but rather that the rise of China and nearby “developmental states” is not and cannot by any level of imagination be due to IMF policy.
And of course those who lived in East Asia at the time might have a very different view of your version of the Asian crisis. In many places, that whole episode is referred to as the “IMF crisis” and people see the recovery as being in spite of the problems that the IMF created.
And this is where it comes down to religion. Any true believer is going to see evidence of their magic in every triumph, and have a neatly packaged explanation for every time the magic doesn’t work. This attitude works from both of the major economic perspectives. Some of us believe that everything good in the economic world is because of neo-liberal policies, and some of us see them as the cause of every bit of poverty. In truth, we haven’t been studying economics that long and the world is changing faster than anyone can keep up with. Any who claims to have the theory of everything is trying to sell you something.