Neoliberalism and African Development
Protester sign mocking neoliberalism as a revolution supported only by big corporations
By: Dr. Fikrejesus Amahazion
Recently I visited a small farming establishment in Asmara. The farm produces a broad range of different fruits and vegetables (e.g. potatoes, strawberries, etc.), and it also houses a variety of animals (e.g. pigs, chickens, etc.). Instead of industrial or corporate production of non-indigenous cash crops for export, everything produced on the farm is for domestic consumption, either within the local and nearby surrounding communities or on the markets of Eritrea. The farm was originally developed through the support of the Eritrean government and a foreign partner. However, it is now locally-led, owned, and staffed, and it has largely become self-sustaining.
Obviously, this is not the typical prototype of all small and/or large scale enterprises in Eritrea. The extractive industries, for instance, remain dominated by foreign companies. The mining agreement has provisions for public-private partnership but it also envisions 90% private ownership in cases where public interest is not best served by government exercise of its additional 30% option of purchasing shares at the production phase. Other lucrative sectors in Eritrea’s economy are also open to foreign/private direct investment without equity restrictions. Still, government involvement in strategic sectors of economic growth, infrastructural projects and social services continues to be significant. The government also pursues interventionist policies to support small-scale private enterprises through various instruments.
This policy mix offers a useful glimpse, in my view, into Eritrea’s larger socio-economic framework that is anchored on sustainable solutions that eschew perpetual and debilitating foreign aid, dependency, neoliberalism, and exploitative Washington Consensus style developmental approaches. Moreover, it presents a simple, yet tangible, example of viable alternatives to recent decades of socio-economic prescriptions and directives by international analysts, experts, and global financial and development institutions. In this context, mainstream descriptions and cursory analyses of Eritrea as isolationist seem misplaced and simplistic. Instead, Eritrea’s focus on industriousness, social justice, and state support for domestic industries, communities, and local businesses, represents a refreshing – and potentially long term successful – approach for socioeconomic development.
The second half of the 20th century witnessed many African states transition to independence, either through armed struggle or decolonization. At independence, these states lagged far behind the majority of the world in terms of socio-economic development and industrialization (Englebert 2000), and accordingly, a paramount objective was the pursuit of development, sustainable growth, and equality on the international stage (Losch 1990). After a period of failed attempts at development and growth via several socioeconomic policy frameworks, many African states began to intensify their relations with international financial institutions (IFIs), such as the International Monetary Fund (IMF) and the World Bank (WB), thus “opening up” to global markets and ushering in a period of neoliberalism.
Based largely on the precepts of free market capitalism, neoliberalism increased in popularity and influence in the late 1970s, at the conclusion of the Marshall Plan era. Its appearance and influence on economic policies is most commonly associated with the government policies of Margaret Thatcher in the UK and Ronald Reagan in the US (Peck and Tickell 1994). Specifically, the 1980s saw the ascendant New Right governments of Thatcher and Reagan proceed with systematic and comprehensive policies of fiscal retrenchment, financial and labor market deregulation, and the evaporation of the Keynesian assumptions that were so central for postwar economic and social policy (King and Wood 1999). Another catalyst for neoliberalism was the New International Economic Order (NIEO) and its persistent calls for equal relationships in the global economy, which strengthened the resolve of developing countries. On the other hand, the NIEO also served to prompt moves by developed countries to return developing countries “back into their places” (Chang 2011).
Neoliberalism (roughly understandable as an umbrella under which the Washington Consensus falls) proposes that human well being can best be achieved through liberating individual entrepreneurial freedoms and skills within an institutional framework characterized by strong private property rights, market deregulation and free trade (Campbell and Pedersen 2001). States are to liberalize their trade and foreign investment, privatize their state-owned enterprises (SOEs), strengthen protection for patents and intellectual property rights, and implement conservative macroeconomic policies, such as high interest rates and balanced budgets (Chang 2011).
As well, the role of the state is relegated to guaranteeing the quality and integrity of money, organizing military, defense, police and legal structures and accomplishing those functions required to secure private property rights, and guaranteeing, by force if need be, the proper functioning of markets. Where some economic frameworks see the state institute social programs such as education and healthcare, neoliberalism leaves these areas strictly to the free market, thus seeing those vital services delivered by private providers (Hahn 2008). Furthermore, if markets do not exist, for example, in areas such as land, water, social security, or environmental pollution, then they must be created, by state action if necessary (Harvey 2005).
Neoliberalism within the African development context emerged as an externally-directed attempt to remove the large-scale dirigisme and involvement of the state from the economy. The Washington Consensus (coined by John Williamson in 1989) employed many features and principles that were inextricably linked to neoliberalism. As a set of policy recommendations, the Washington Consensus offered economic policy prescriptions that were considered the standard reform package for developing countries, with its main advocates and staunchest defenders being the IMF and the WB. Specific policy recommendations within the Washington Consensus include macroeconomic stability, “getting prices right,” liberalization of markets to trade and investment, tax reform, and basically less overall state involvement (Naim 2000).
As neoliberal policies progressively strengthened within the U.S. and other developed countries, IFIs, which were highly influenced or directed by many western and now-developed countries (NDCs), increasingly began to encourage neoliberal policies. Through aid and loans, the IMF and WB endorsed neoliberal principles unto developing countries by using conditional clauses and stipulations (Kimanuka 2009). The WB and IMF also sponsored structural adjustment programmes (SAPs) for African states and by 1989, 84 structural adjustment loans had been agreed to between the WB and various African states (Harrison 2005).
The 1980s and early 1990s wave of neoliberalism that spread across the developing states of Africa meant that many African countries underwent long periods of structural adjustment (Hanson and Hentz 1999). SAPs, as prescribed by IFIs, sought to “correct” the misguided African socio-economic development policies of the previous two decades. They called for many reforms to change subSaharan Africa’s socio-economic policies and presented new trade liberalization programs for improving domestic production and external trade (Kimanuka 2009; Kirkpatrick 1995). The SAPs and proposed reforms were persistently promoted as being the catalysts necessary for long-term growth and improvement, and they primarily focused their attention on securing macroeconomic stabilization (UN ESC 2011). Specifically, the SAPs called for African countries to:
- “[d]rastically reduce trade barriers protecting the local economy from foreign competition,
- [d]eeply reduce or eliminate subsidies and price controls, which were seen as distortions of internal prices for a number of goods and services,
- [r]estructure the financial system and weaken or remove controls on the movement of capital,
- [e]liminate controls on private foreign investment, [and]
- [r]educe the role of the state, not only in the economy, but also in the provision of social services” (Kimanuka 2009: 3).
Quickly and aggressively, the SAPs weakened the direct control of African states while attempting to promote growth-oriented market economies. However, African states actually began to suffer as a result of policies calling for the reduction of subsidies on food, medicine and education and eliminating social institutions, government programs, currency exchange control, and SOEs. The level of decline and deep economic crises during the 1980s and 1990s within sub-Saharan Africa caused observers to refer to the period as two “lost decades” (Stone 2004).The international economic environment was increasingly hostile, particularly with declining terms of trade leading to heavy servicing of debts (Kimanuka 2009; Kirkpatrick 1995). For example, Africa’s debt crisis actually worsened from the period 1980 to 2000; sub-Saharan Africa’s total foreign debt rose from US$60 billion to US$206 billion, and the ratio of debt to GDP rose from 23 per cent to 66 per cent. In 1980, loan inflows of US$9.6 billion were comfortably higher than the debt repayment outflow of US$3.2 billion. But by 2000, only US$3.2 billion flowed in while US$9.8 billion was repaid, leaving a net financial flows deficit of US$6.2 billion (Bond 2005). Hence, Africa was (and is) repaying more than it receives, or using its loans to payoff its debts.
Further evidence against the viability of the neoliberal socioeconomic development framework for sub-Saharan Africa is that, during the neoliberal era, income inequality among Africans widened, social turmoil rose, unemployment reached its peak, social services became unaffordable for women, children, the elderly, and the poor, and the state regressed towards deterioration. The rigorous IMF restructuring and recommendation plans essentially saw a dramatic decline in Africa’s standards of living, terms of trade and ability to service debts (Bond and Dor 2003).
The utter failure of SAPs was effectively confirmed when the United Nations Economic Commission for Africa (UNECA) claimed that those African countries that had rejected SAPs had actually done “better” than those that had accepted aid or prescriptions in social welfare development (UN SAP 1989). In addition, the adoption of the neoliberal prescriptions within SAPs has been linked to severe economic distress in Zambia and South Africa (Hanson and Hentz 1999), while in Neoliberal Africa: The Impact of Global Social Engineering (2010), Harrison finds that, despite the gargantuan size of resources behind it and the lack of policy alternatives, neoliberalism and its policy prescription have not offered Africa tangible socioeconomic or developmental progress (Harrison 2010).
Overall, recent decades have seen a range of socio-economic prescriptions and directives by international analysts, experts, and global financial and development institutions. However, instead of achieving sustainable socioeconomic growth and positive development outcomes, many African states, following neoliberal, Washington Consensus based policies, experienced stagnation or regression, accrued large debts, and fell into cycles of debilitating dependency. Within this context, Eritrea’s socioeconomic development approach based on sustainability, social justice, support and protection for individuals and communities, locally led and implemented solutions, avoidance of structural and perpetual dependence on foreign aid, and harsh neoliberal programmes, may offer a viable, effective alternative.
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