Wednesday, March 22, 2023
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A pillar of neoliberalism wobbles

Roberto Savio. Fundador de la agencia IPS y editor de Other News

Roberto Savio. Founder of the IPS news agency and publisher of Other News

In this column, which is published by Journalists in Spanish, Roberto Savio said that whilst the effects of the collapse of the financial system remain serious and forecasts for the future are bleak, a study by the International Monetary Fund has unexpectedly made an objection to a fundamental principle of liberal doctrine. According to the biggest organisation of workers, representative trade unions that increased government spending would help reduce inequality within countries.

The "World Economic Outlook" report, released this month by the International Monetary Fund (IMF), confirms that the consequences of the collapse of the financial system, which began in 2008, remain serious. This picture is accentuated by the ageing of everyone, not only in Europe but also in Asia, the slowdown in productivity and weak private investment.

The above average growth before the financial crisis broke out in 2008 was about 2.4 percent. It fell to 1.3 percent between 2008 and 2014 and is now estimated to have stabilised at 1.6 percent until 2020, in what economists call the "new normal."

In other words, "normal" is now high unemployment, anaemic growth and obviously, a difficult political climate.

For emerging countries, the picture is not much better. Further potential growth is expected to decline, averaging about 6.5 percent between 2008 and 2014 to an estimated 5.2 percent during the period 2015-2020.

The case of China is the best example. Growth is expected to fall from an average of 8.3 percent in the past decade, to about 6.8 percent. The China contraction has drastically reduced the prices of raw materials and therefore has hurt exporters.

Progressive parties have not developed a theory for times of crisis

The crisis is particularly strong in Latin America. In Brazil, the decline in exports has contributed to the worsening of the serious crisis in the country and increased the already high unpopularity of its president, Dilma Rousseff, due to economic mismanagement and scandalous revelations about widespread corruption in Petrobras, the semi-public oil company.

Incidentally, this gives rise to a fundamental reflection. From Marx to Keynes, theories about the redistribution of income were mainly constructed in the context of stable or growing economies. Progressive parties were able to get their hits during growth cycles, but have not developed as a parallel theory to be applied in times of crisis. In such situations, they often imitate recipes of the Right, in a twist that blurs the progressives' identity and makes them lose adepts in the electorate.

Analyzed in this light, the situation in Europe is instructive. All xenophobic far-right parties have been expanding since 2008, when the recession began, even in the Nordic countries, considered models of democracy. During the same period, the progressive parties have lost weight and credibility. And now that the IMF sees some improvement in the European economy, the traditional progressive parties have not reaped the benefits.

The IMF describes the current economic situation, as "a new mediocrity," which is a more frank than "new normal" definition. They predict that in the next five years, we will face serious problems in public policies, such as fiscal sustainability and unemployment.

It is a fact that macroeconomic data is becoming less representative with every passing day and often used to conceal social realities.



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